Computation of turnover under GST

Computing the turnover of outward supplies under GST law is relevant for various reasons. This article discusses the various compliances under GST law, which are dependent on the aggregate turnover of the registered person. This article also discusses certain exclusions and impact of certain outward supplies on computation of turnover and Input Tax Credit.

PART 1

Registration requirement,
Eligibility under composition scheme,
Periodicity of filing GSTR-1,
Filing annual return in Form GSTR-9 and GSTR-9A,
Filing audit report in Form GSTR-9C,
Relaxation in payment of interest (Covid-19 relaxation)

PART 2

AAR in the matter of Anil Kumar Agrawal [KAR ADRG 30/2020],
Impact of interest income in case of composition dealers,
Impact of services covered under reverse charge on a supplier of service,

PART 1:

Registration requirement: GST law provides for threshold limit for obtaining GST registration. The threshold limits for registration are as under –

From July 01, 2017 to March 31, 2019
Type of supplier	Normal category states	Special category states
Supplier of goods or services or both	Rs.20 Lakhs	Rs.10 Lakhs
Special category states are – Arunachal Pradesh, Assam, Jammu & Kashmir, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Himachal Pradesh, Uttarakhand

From April 01, 2019
Type of supplier	In states of States of Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Puducherry, Sikkim, Telangana, Tripura, Uttarakhand	All other states
Exclusive supplier of goods [Refer notification No.10/2019-CT dated 07/03/2019]	Rs.20 Lakhs	Rs.40 Lakhs
Note: For Kerala the threshold limit for exclusive supplier of goods remains at Rs.20 Lakhs because the state has opted to maintain status quo.

From April 01, 2019
Type of supplier	In states of States of Arunachal Pradesh, Manipur, Meghalaya, Mizoram,Nagaland, Puducherry, Sikkim, Telangana,Tripura, Uttarakhand	All other states
Exclusive supplier of Services	Rs.10 Lakhs	Rs.20 Lakhs

Eligibility under composition scheme:

Option to register under Composition Scheme is available to specified classes of suppliers of goods or services or both. The various categories of suppliers and the limits are as under –

Composition scheme for goods [Section 10(1) of CGST Act, 2017] Notification No.14/2019, dt. 07/03/2019
Type of supplier	Turnover limit of previous year
Supplier of goods in states of Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura and Uttarakhand.	Rs. 75 Lakhs
Supplier of goods in all other states	Rs.1.50 Crores
Note: A supplier of goods under the scheme is allowed to make outward supply of services. However, to remain registered under the composition scheme, such supply of services should not exceed Rs.5 Lakhs or 10% of the aggregate turnover in state whichever is higher.

Composition scheme for Services [Section 10(2A) of CGST Act, 2017] Notification No.2/2019, dt. 07/03/2019
Type of supplier	Turnover limit of previous year
Exclusively, Supplier of services (all states)	Rs. 50 Lakhs

Periodicity of filing GSTR-1:

The periodicity of filing GSTR-1, return of outward supplies depends on the turnover of the previous year or current year as under –

Turnover less than Rs.1.5 Crores in previous year (or current year)	Quarterly filing of GSTR-1
All other cases	Monthly filing of GSTR-1

Annual return in Form GSTR-9 and SGTR-9A:

Vide notification No.47/2019-Central Tax dated October 09, 2019, exemption from filing annual return in Form GSTR-9 and GSTR-9A is given to registered persons with an aggregate turnover in the financial year not exceeding Rs.2 Crore.

Filing of audit report in GSTR-9C:

Rule 80(3) of the CGST Rules, 2017 has been amended w.e.f. 23/03/2020 to provide that the turnover limit for mandatory filing of Form GSTR-9C for financial year 2018-19 will be Rs.5 Crores.

Relaxation in payment of interest (Covid-19 relaxation):

In the wake of Covid-19 pandemic, the government has introduced relaxation for payment of interest from the normal rate of 18% to the lower rate of 9%. Briefly, the relaxations for rate of interest is as under –

Interest payable – If turnover is exceeding Rs.5 Crore in previous ﬁnancial year
Sr.No.	Return	Month	If ﬁled up to	Interest rate	If ﬁled up to	Interest rate
1	GSTR-3B	February 2020	April 04,2020	Nil	June 24, 2020	9% p.a.
2	GSTR-3B	March 2020	May 05, 2020	Nil	June 24, 2020	9% p.a.
3	GSTR-3B	April 2020	June 04, 2020	Nil	June 24, 2020	9% p.a.

Part 2

AAR in the matter of Anil Kumar Agrawal [KAR ADRG 30/2020]:

In view of the discussion in Part 1 above, computing the turnover of outward supplies under GST law is of vital importance. The term aggregate turnover is defined under section 2(6) of the CGST Act, 2017 as under –

“aggregate turnover” means the aggregate value of all taxable supplies (excluding the value of inward supplies on which tax is payable by a person on reverse charge basis), exempt supplies, exports of goods or services or both and inter-State supplies of persons having the same Permanent Account Number, to be computed on all India basis but excludes central tax, State tax, Union territory tax, integrated tax and cess;

A simple reading of the above definition makes it clear that the term aggregate turnover of outward supplies is the sum to total of –

aggregate turnover of outward supplies =

Taxable supplies + Exempt supplies + Export supplies + Supplies to branches + Supplies on which recipient has to pay GST under RCM+ Sale of assets for a consideration

In a recent advance ruling issued by Karnataka AAR in the matter of Anil Kumar Agrawal [KAR ADRG 30/2020] the AAR clarified the incomes which should be considered as a part of outward supplies. The AAR ruling is presented in a tabular form hereunder –

Nature of income	To be considered as part of outward supplies or not	Taxable or exempt
Partner’s salary as partner from my partnership firm	not required to be added to the aggregate turnover for registration under the provisions of GST Act	Not applicable as not a supply
Salary as director from Private Limited company	not required to be added to the aggregate turnover for registration under the provisions of GST Act	Salary of executive director is not considered as supply. Salary of non-executive director is considered as supply covered under RCM.
Interest income on partners fixed capital credited to partner’s capital account	to be included in the aggregate turnover for registration	Exempt supply
Interest income on partners variable capital credited to partner’s capital account	to be included in the aggregate turnover for registration	Exempt supply
Interest received on loan given	to be included in the aggregate turnover for registration [See Note 1]	Exempt supply
Interest received on advance given	to be included in the aggregate turnover for registration [See Note 1]	Exempt supply
Interest accumulated along with deposit/ fixed deposit	to be included in the aggregate turnover for registration (accrued interest) [See Note 1]	Exempt supply
Interest income received on deposit/ fixed deposit	to be included in the aggregate turnover for registration [See Note 1]	Exempt supply
Interest received on Debentures	to be included in the aggregate turnover for registration [See Note 1]	Exempt supply
Interest accumulated on debentures	to be included in the aggregate turnover for registration (accrued interest) [See Note 1]	Exempt supply
Interest on Post office deposits	to be included in the aggregate turnover for registration [See Note 1]	Exempt supply
Interest income on National Savings certificate (NSCs)	to be included in the aggregate turnover for registration (accrued interest) [See Note 1]	Exempt supply
Interest income credited on PF account	to be included in the aggregate turnover for registration [See Note 1]	Exempt supply
Accumulated Interest (along with principal) received on closure of PF account	to be included in the aggregate turnover for registration (accrued interest) [See Note 1]	Exempt supply
Interest income on PPF	to be included in the aggregate turnover for registration [See Note 1]	Exempt supply
Interest income on National Pension Scheme (NPS)	to be included in the aggregate turnover for registration [See Note 1]	Exempt supply
Receipt of maturity proceeds of life insurance policies	not required to be added to the aggregate turnover for registration under the provisions of GST Act	Not applicable as not a supply
Dividend on shares	not required to be added to the aggregate turnover for registration under the provisions of GST Act	Not applicable as not a supply
Rent on Commercial Property	to be included in the aggregate turnover for registration	Taxable supply
Residential Rent	to be included in the aggregate turnover for registration	Exempt supply
Capital gain /loss on sale of shares	not required to be added to the aggregate turnover for registration under the provisions of GST Act	Not applicable as not a supply

The above advance ruling throws light on the manner of computation of aggregate turnover for the purpose of registration. The same method can be used for computation of aggregate turnover for various other purposes under the act.

Note 1:

It is interesting to note that in paragraph 7.6 of the advance ruling in Anil Kumar Agrawal’s case, the AAR has observed that –

“Thus, the interest earned by the applicant, out of the deposits/loans/advances extended, amounts to consideration and is exempted by virtue of entry number mentioned supra. Therefore, in the instant case extending the deposits/loans/advances by the applicant is nothing but exempted service and the actual amounts of deposits/loans/advances become the value of the service. Thus, these amounts are to be included in the aggregate turnover for registration, under the provisions of GST Act. “

Readers will note the contradiction in AARs observation. In the first part AAR states that the interest amount earned by the applicant is the consideration and therefore, exempt by virtue of Entry No.27(a) of Notification No.12/2017-CT (Rate) dated 28.06.2017. Whereas in the subsequent part, AAR states that the actual amount, i.e., the principal amount becomes the value of exempted service.

Entry 27(a), referred to above, is clear in the fact that it is consideration that is exempt and not the underlying principal amount. It only consideration for a supply that can be taxable or exempt. The principal amount of loan or deposit cannot be considered as a service at all. This is the only logical interpretation.

For the sake of argument, if the exemption under Entry 27(a) is withdrawn the supplier would levy GST on the principal amount as well as the Interest component! Clearly, this was never the intention of statute.

Therefore, it is our view that only the interest component is to be considered as the value of exempt supply with regard to Entry 27(a) of the notification.

Impact of interest income in case of composition dealers:

In paragraph 2 of Part 1, we have already discussed the provisions applicable to a supplier of goods and suppliers of services under composition scheme. The reader will recall that a supplier of goods under composition scheme can also supply services, however, the turnover of services shall not exceed Rs.5 Lakhs or 10% of the aggregate turnover in state whichever is higher. We have also seen that the AAR, Karnataka has opined that interest income is includable in computation of aggregate turnover for the purpose of registration. Under the circumstances, what will be the impact of interest income earned by a composition dealer who is a supplier of goods?

To answer this, we refer to the explanation to Section 10(1) of the CGST Act, 2017. Accordingly, the explanation clarifies that the value of exempt turnover represented by interest on deposits/loans will not be considered as part of the turnover for the purpose of composition scheme. The relevant explanation is reproduced hereunder for ready reference –

“Explanation.–– For the purposes of second proviso, the value of exempt supply of services provided by way of extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount shall not be taken into account for determining the value of turnover in a State or Union territory.”

While this explanation is introduced w.e.f. 01/01/2020, one may be able to take a stand that it has retrospective effect because it is merely explanatory in nature.

A similar situation may also be faced by a supplier of service who is registered under the composition scheme. The question that arises is that whether interest income is to be considered for the purpose of computation of limit of Rs.50 Lakhs for the supplier of services.

Once again, we refer to Section 10. Explanation 2 to Sub-clause 5 clarifies that the value of exempt turnover represented by interest on deposits/loans will not be considered as part of the turnover for the purpose of composition scheme. Hence, even for a supplier of services registered under composition scheme, interest income is not to be considered as a part of aggregate turnover.

Impact of services covered under reverse charge on a supplier of service:

Notification No. 13/2017- Central Tax (Rate) dated 28/06/2017 specifies certain services covered under Reverse Charge (RCM) provisions. The GST on such services is to be paid by the recipient of the service. The Service provider is not allowed to levy GST on his services under forward charge. Some of the services are –

Goods Transport Agency services,
Services of advocates,
Services rendered by directors to the company,
Sponsorship services,
Recovery agent’s services,
Service of transfer of TDR or FSI,
Services of an insurance agent,
Security services,
Car hire services, etc.

A supplier who supplies only the goods or services covered under RCM and no other services is exempt from registration requirement vide Notification No.5/2017-Central tax, dated 19/06/2017. However, in case of suppliers who supply goods and services (or both) covered under forward charge as well as goods and services (or both) covered under reverse charge are liable to register under GST law, subject to fulfilment of other conditions in this regard.

To illustrate, a trade association may supply sponsorship services and also the services of a membership association. Similarly, a travel agent may supply the services of passage booking as well as those of car hire. These are cases where he computation of aggregate turnover is necessary for determining the registration requirement.

In such cases, we refer to Section 9(3) which specifies that GST on ‘supply’ of specified categories of services shall be covered under RCM provisions. Hence, we understand that even though the said specified service is covered under RCM provisions, it still qualifies as a supply under the act.

Further, Section 17(3) specifies that the value of exempt supplies also includes the value of services on which GST is to be paid by the recipient under RCM provisions.

Based on both the above provisions, we conclude that the turnover of supplies on which the recipient is required to pay GST under RCM provisions also has to be included in aggregate turnover.

We trust this brief discussion will be of some help to determine the turnover for the purpose of registration and filing GST returns. Questions or comments of readers on this article are welcome.

Dipen Lathi,
Chartered Accountant
www.Lathico.com

DISCLAIMER : No assurance is given that the revenue authorities/ appellate authorities/ courts would concur with the views expressed herein. Our views are based on the existing provisions of law and our interpretation thereof. We do not assume responsibility to update the views consequent upon such changes, if any. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.

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