Applicability of GST on additional/penal interest on delayed payment

Commentary on Circular No. 102/21/2019 – GST dated June 28, 2019 regarding the applicability of GST on additional/penal interest on delayed payment charges in case of late payment of Equated Monthly Instalments (EMI)

Entry 5(e) of Schedule II of the Central Goods and Services Tax Act, 2017

• “Agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act”
• It is Clarified that the transaction of levy of additional/penal interest does not fall within the ambit of entry 5(e) of Schedule II of the CGST.

Section 15 (2) (d) of CGST Act

• The value of supply shall include “interest or late fee or penalty for delayed payment of any consideration for any supply”.

SI. No. 27 of notification No. 12/2017-Central Tax (Rate) Dated 28th June 2017

•  Services by way of (a) extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount (other than interest involved in credit card services)”is exempted

As per clause 2 (zk) of notification No. 12/2017-Central Tax (Rate) dated 28th June 2017

• “Interest means-interest payable in any manner in respect of any moneys borrowed or debt incurred (including a deposit, claim or other similar right or obligation) but does not include any service fee or other charge in respect of the moneys borrowed or debt incurred or in respect of any credit facility which has not been utilised;”