06 April 2019
Yes , In my view , interest on delayed charges is subject to GST
In case of Bajaj Finance Limited, an advance ruling has been passed on 6/08/2018 on imposition of GST on penal interest.
In the said case, BFL gave loan to customers for a specific period repayable in EMIS including principal and interest amount. Failure to pay within the due date attracted penalty charges based on a certain percentage. In the process, BFL agreed to tolerate the act of delayed payment in lieu of penalty.
The said activity squarely falls under clause 5(e) of the Schedule II of GST Act, 2018 and, therefore, such amounts received would attract tax liabilities under GST
Schedule II, entry 5 of CGST Act, includes services in the scope of supply as "agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act ". Thus, it is contended that there is a service of tolerating an act because there is toleration of the act of default or situation of default of the loanee or borrower by the Lender in exchange for default charges named as penal interest. The nomenclature does not alter the substance of the transaction. Penal charges are charges on over-due amount. Thus, penal charges fall within the scope of supply under the CGST Act, section 7
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