GST on forfeited amount of security deposit

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ABDUL SALAM (Querist)
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29 December 2021 Dear Sir/Madam,

Could you please educate me 'Whether the forfeited amount of security deposit would attract GST'?....

Thank you

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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29 December 2021 No GST as it will not fall under supply.

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ABDUL SALAM

ABDUL SALAM (Querist)
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30 December 2021 Thanks a lot for the support and time Sir...

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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30 December 2021 Sorry for the earlier reply.
GST applicable on such forfeiture.

“As per Section 7(1) of the CGST Act, 2017, activities referred to in Schedule II are covered under the scope of supply of goods and service. Clause 5(e) to Schedule II to CGST Act 2017, declares that ‘agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act’ shall be treated as supply of service. The amount, which was received and forfeited by the applicant, was a part of the terms and condition of an agreement held between the applicant and customer. This means that while entering into the agreement, Customer was well aware about the terms and condition of the contract that in absence of breach of agreement or non- fulfillment of terms and condition of payment as per the contract, the amount given as an advance would become forfeited by the applicant being settlement of exit of the contract,” the AAR said.

The AAR said that the amount forfeited/ received by the applicant is covered under supply of service as per clause 5(e) of Schedule II of CGST Act, 2017 and therefore, liable to GST.

CA Altamush Zafar

CA Altamush Zafar (Expert)
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31 December 2021 Forfeiture of security deposit is generally against supplies for which consideration was not received. Forfeiture will render the deposit becoming consideration. GST applicable.

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ABDUL SALAM

ABDUL SALAM (Querist)
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01 January 2022 Okay...Thanks a lot for the information and support....

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