CBIC issued Circular No. 178/10/2022-GST 03rd of August, 2022 discussing taxability of few transactions in greater detail, the impact of which needs to be taken into consideration.
This article discusses GST on Cheque dishonour fine/ penalty / Charges, GST on Forfeiture of salary or payment of bond amount in the event of the employee leaving the employment before the minimum agreed period, GST on Late payment surcharge or fee and GST on payment cancellation fee or retention or forfeiture of the consideration or security deposit.
Page Contents
- A. GST on Cheque dishonour fine/ penalty / Charges
- B. GST on Forfeiture of salary or payment of bond amount in the event of the employee leaving the employment before the minimum agreed period
- C. GST on Late payment surcharge or fee
- D. GST on payment cancellation fee or retention or forfeiture of the consideration or security deposit
A. GST on Cheque dishonour fine/ penalty / Charges
The fine or penalty that the supplier or a banker imposes, for dishonour of a cheque, is a penalty imposed not for tolerating the act or situation but a fine, or penalty imposed for not tolerating, penalizing and thereby deterring and discouraging such an act or situation. Therefore, cheque dishonour fine or penalty is not a consideration for any service and not taxable.
Analysis – Any fine/penalty on Cheque dishonour is not a supply and thus not taxable.
B. GST on Forfeiture of salary or payment of bond amount in the event of the employee leaving the employment before the minimum agreed period
The said amounts are recovered by the employer not as a consideration for tolerating the act of such premature quitting of employment but as penalties for dissuading the non-serious employees from taking up employment and to discourage and deter such a situation. Therefore, such amounts recovered by the employer are not taxable as consideration for the service of agreeing to tolerate an act or a situation. Analysis – Thus amount charged as Notice Pay Recovery by employer from employee is not a supply and thus not taxable.
C. GST on Late payment surcharge or fee
The facility of accepting late payments with interest or late payment fee, fine or penalty is a facility granted by a supplier naturally bundled with the main supply. Since it is ancillary to and naturally bundled with the principal supply it should be assessed at the same rate as the principal supply.
Analysis – Thus late fees charged will be clubbed to the main/principal supply and be taxable at rates of main supply.
D. GST on payment cancellation fee or retention or forfeiture of the consideration or security deposit
The facilitation of supply of allowing cancellation of an intended supply against payment cancellation fee or retention or forfeiture of a part or whole of the consideration or security deposit should be assessed as that of principal supply and are subject to GST, in cases where such supply is taxable. Naturally, such payments will not be taxable if the principal supply is exempt.
Analysis – Thus cancellation fees charged will be taxed as that of the principal supply and be taxable at rates of principal supply if taxable and not be taxed if principal supply is exempt
Author Bio
My society has levied fine for unauthorised car parking. My society is
demanding GST @18 percent on said fine
although there no supply of goods or service is involved. Whether society is in
order. Society is demanding GST @18 for
the each and every item arranged by them
for the residents which are other wise tax exempt or attract a lower rate e.g. face masks and on site medical center