The Karnataka Authority of Advance Ruling (AAR) held that GST might be imposed on the notional interest upon the security deposit.
The petitioner is the owner of Midcon Polymers Pvt. Ltd. who has the intention to involve in the business of renting commercial property on the monthly rents and allied business. They have an idea to engage in the contractual agreement of the immovable property through the educational institution in Bangalore.
The contract is on the grounds of the reversed monthly rent of Rs 1.50 lakhs or the yearly rent of Rs 18 lakhs as well as a refundable caution of Rs 500 lakhs that is to be returned excluding the interest on the finish of the tenancy. Moreover, since the petitioner is needed to give the advance caution deposit, this will not evaluate the quantum or rent.
The problem for the event is raised towards the plan of arriving on the rental income, whether the petitioner can attempt the reduction of the property taxes 
It was probed towards the total income via rental whether notional interest on the security deposit must be considered and if the petitioner is liable for the privilege of the tax beneath basic exemption which is Rs 20 lakhs.
The two judges Dr. Ravi Prasad and Mashood Ur Rehman Farooqui said that the petitioner could not cut the duty towards the property along with the other taxes towards the procurement of coming at the cost of the rental income.
“Notional interest has to be considered as part of value of supply of service, if and only if the said notional interest influences the value of supply i.e. value of RIS service / monthly rent and is leviable to GST (Goods and service tax) along with monthly rent at the rate applicable to monthly rent,”
The authority moreover directs that the petitioner is liable to get the privilege on the tax beneath the basic privileges of Rs 20 lakhs as per the circumstances that their yearly turnover consists of the monthly rent and notional interest if it rises the supplied value will not be more than the threshold limit.
