This circular provides clarification on the GST applicability in cases where an overseas affiliate provides a loan to its Indian affiliate, or when a person grants a loan to a related party, with consideration only in the form of interest or discount.

It explains that although the activity of granting loans between related persons qualifies as a “supply” under Section 7(1)(c) read with Schedule I of the CGST Act, such services are exempt from GST under Entry 27(a) of Notification No. 12/2017-Central Tax (Rate), provided that the only consideration is interest or discount.

The circular further clarifies that when no processing fee, administrative charge, or loan granting charge is collected, no separate supply of service can be presumed merely due to the related-party nature of the transaction. However, if any such additional fee is charged, it will be treated as taxable consideration for processing or facilitating the loan and will attract GST.