GST LATE FEE & PENALTY

Dear siro
Clarification:

1 GST LATE FEE is an allowable expenditure
2 .GST penalty & interest is not allowed while computing taxable income and for reporting purposes.

Please clarify sir
Replies (3)
Yes... GST Late Fee & Interest are allowable expense in Income Tax.


But, GST penalty is disallowed in income tax return.

1. First, let us examine the nature of expenses which are disallowed under sec 37. If the payment is in the nature of infraction of law then it will not be allowed as deduction. The penalty is an example for infraction of law and thus it will not be allowed as business expenditure u/s 37.  
2. Similarly, IT and interest u/s 234 ABC will not be allowed as deductions for late filing of income tax and for deferment of advance tax. This is also not allowed u/s 40(a)(ii). 
3. However the above cannot be equated with GST as tax paid under GST is allowed as deductions subject to sec 43B. 
4. Now, whether late fee under GST will be covered under sec 37 and subsequently be allowed as a deduction ? or will it be treated in the same way as sec 234ABC interest and disallow it u/s 40(a)(ii)...? 
5. Let us first go through sec 40(a)(ii) where it only deals with the amount in relation to the rate of tax levied on profits and gains from business or profession. So GST late fee will not be disallowed under sec 40(a)(ii).
6. The condition to be satisfied with respect to the allowance of deductions u/s 37 is that it should be for the purpose of business or profession and it should not be paid for infraction of laws. Now the question is whether GST late fee will come under infraction of law..? 
7. There is a possibility that it may be viewed as a penalty and subsequently not allowed as deductions. There is nowhere it is specified that interest on late payment is not a penalty. It could be viewed as a penalty for violation of law which ultimately the assessee is responsible. Hence, it may not be allowed as deduction u/s 37. 
8. Yet to receive any official notification or explanation on the same. 
Please correct me if the above interpretation has an alternative view. 

Interest will be allowed but penalty will not be as it is imposed for violation of law which is not a business expenditure under section 37

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