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
Section 15 (2) (d) of CGST Act
As per clause 2 (zk) of notification No. 12/2017-Central Tax (Rate) dated 28th June 2017
|Issue/ Concern for clarification of Notification||Applicability of GST on delayed payment charges in case of late payment of Equated Monthly Installments (EMI)|
|Case 1.- X sells a mobile phone to Y. The cost of mobile phone is Rs 40,000/-. However, X gives Y an option to pay in installments, its 11,000/- every month before loth day of the following month, over next four months (Rs 11,000*4 = Rs. 44,000). Further, as per the contract, if there is any delay in payment by Y beyond the scheduled date, Y would be liable to pay additional / penal interest amounting to Rs. 500/- per month for the delay. In some instances, X is charging Y Rs. 40,000/- for the mobile and is separately issuing another invoice for providing the services of extending loans to Y, the consideration for which is the interest of 2.5% per month and an additional / penal interest amounting to Rs. 500/- per month for each delay in payment.||Applicable provision 15(2)(d) , the amount of penal interest is to be included in the value of supply. The transaction between X and Y is for supply of taxable goods i.e. mobile phone.
Accordingly, the penal interest would be taxable as it would be included in the value of the mobile, irrespective of the manner of invoicing.
|Case 2 -X sells a mobile phone to Y. The cost of mobile phone is Rs 40,000/-. Y has
the option to avail a loan at interest of 2.5% per month for purchasing the mobile from
M/s ABC Ltd. The terms of the loan from M/s ABC Ltd. allows Y a period of four months to repay the loan and an additional / penal interest @ 1.25% per month for any
I delay in payment.
|The value of supply of mobile by X to Y would be Rs. 40,000/- for the purpose of levy of GST.
Transaction between Y and M/s ABC Ltd., is getting covered under Sl. No. 27 of notification No. 12/2017‑
Central Tax (Rate) dated 28.06.2017. Accordingly, in this case the ‘penal interest’ would be exempt from tax