The amounts received towards interest-free refundable security deposit do not attract GST unless the same is applied towards ‘consideration’. However, the notional interest / monetary value of the act of providing such deposits will attract GST as it is covered within the definition of ‘consideration’. AAR held that providing pre-decided number of free transactions subject to certain pre-determined maximum amount is in the nature of discount and will not attract GST subject to section 15(3) of CGST Act, 2017

FACTS

The applicant engaged in providing financial and other services and also provides service for the operation of dematerialised (Demat) accounts to various account holders as well as to persons intending to operate only their Demat accounts. The applicant sought a ruling as to whether (i) amounts received by the applicant as refundable interest-free deposit could be treated as ‘supply’ under GST? (ii) whether the amount of Rs. 2,500 being a refundable interest-free deposit, which allows the depositor some benefits, would attract GST? and

(iii)    whether the first ten free transactions subject to a maximum of Rs. 5 lakhs allowed to the Demat account holder depositing the refundable interest-free deposit would attract GST?

RULING

AAR noted that the deposit is excluded from the definition of the consideration by the proviso to section 2(31) of the CGST Act, 2017. However, the notional interest / monetary value of the act of providing the refundable interest-free deposit will be considered as consideration since it is covered in both the limbs of the definition of consideration given u/s 2(31). Further, AAR noted that the refundable interest-free deposit is in addition to the commercial considerations to cover the risk of the Demat account. The main purpose of the deposits is not only security but also the collection of capital. Therefore, AAR held that the monetary value of the act of providing a refundable interest-free deposit is the consideration for the services provided by the applicant and therefore, the services provided by the applicant can be treated as supply and chargeable to GST in the hands of the applicant.

As regards the refundable interest-free deposit of Rs. 2,500, it was held that such amount will not attract GST unless it is applied towards consideration and the monetary value of the act of providing such deposit will attract GST. Allowing free transactions was looked upon as discount and hence was held as not to attract GST subject to the fulfilment of the conditions u/s 15(3) of the CGST Act, 2017.