GST interest and Late fee allowed or Disallowed

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Kishore Nuthalapati

Accountant for multiple small entities

154 Points Posted on 26 June 2023

Hi Sir or Madam

We are looking after Accounts of a proprietor firm

Every month we are filing GST returns after due date only

Hence For Financial year 2022-23 we have paid interest and late fee 97,000

Could some one please advise whether this can be allowed or disallowed under income tax act

Thanks in advance

Replies (5)

Quick Summary

This discussion clarifies whether interest and late fees paid on Goods and Services Tax (GST) are allowable expenses under the Income Tax Act. The consensus is that both GST interest and late fees are generally allowed as deductions, as they are incurred for legal compliance rather than as a penalty for breaching the law. However, it's important to distinguish this from penalties, which are typically disallowed. For expenses related to the Income Tax Act itself, interest, penalties, and late fees are not usually deductible.

bhanu priya

24 Points Posted on 26 June 2023

Interest and late fees on GST both allowed under income tax act as it is not in the nature of breach of law but paid for the purpose of compliance of law. Thus, both allowed.

Asif sd

24 Points Posted on 26 June 2023

Memorize it this way,
Any other Act- penalty under any law is not allowed, interest or late fee under any law is allowed(except Income Tax Act)

Income Tax Act- interest, penalty, late fee paid under Income Tax Act are not allowed

Harshit Sarawgi

56 Points Posted on 26 June 2023

Indirect Taxes - Late Fee & Interest allowed as expenses in Income Tax but Penalty disallowed and added back to profit.

Tax Garden

Tax Consultant

2084 Points Posted on 15 September 2026

GST late fee and GST interest are treated differently for income tax deductibility, a common area of confusion.

GST late fee: NOT deductible as a business expense. Late fee under Section 47 of CGST Act is a statutory penalty for non-compliance. Section 37 of the Income Tax Act (and its equivalent in the new IT Act 2025) disallows any amount paid as penalty or fine for violation of law. The ITAT has consistently upheld this position.

GST interest under Section 50: DEDUCTIBLE as a business expense. The Supreme Court in Allied Motors (P.) Ltd. (though an older case) and subsequent ITAT rulings have clarified that interest for delayed tax payment is compensatory, not penal. It is paid as consideration for withholding government money and is therefore allowable under Section 37.

Practical tip: in your books and ITR, split the GST payment challan into three components, tax, interest, and late fee. Claim only the interest component as a deduction. If the department disputes it, cite the compensatory nature of Section 50 interest.

For the full GST penalty and late fee impact guide: taxgarden.in/blog/gst-late-fee-interest-penalty-gstr-3b-gstr-1-gstr-9-guide

Aashok Kumar Sharma

Finance/Compliance Consultant

77923 Points Posted on 06 November 2026

Generally allowed, with one caution:

• Interest on delayed GST (Sec 50): compensatory for delayed payment, not a penalty for an offence. Deductible under Sec 37(1). Courts have consistently allowed interest on delayed indirect taxes (e.g. SC in Lachmandas Mathura on the principle that compensatory interest is allowable).

• Late fee on GST returns (Sec 47): a fee for regularising late filing, not a penalty for infringement of law. Most tribunals allow it as a business expense. Some AOs disallow it, arguing it arises from a statutory default (Explanation 1 to Sec 37(1)), so keep it separately accounted.

• Penalty under GST (Sec 122–125): disallowed.

• Interest on delayed income-tax (234A/B/C) or TDS (201(1A)) is not deductible, since income-tax is not an allowable expense (Sec 40(a)(ii)).

• Fee under Sec 234E (late TDS return) is generally treated as compensatory, but it is disputed.

• Ensure the auditor reports penalties separately in Form 3CD clause 21(a).