GST ON INTEREST/FINANCIAL CHARGES

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Kishor Golchha

8 Points Joined August 2023

A bill for goods worth Rs. 1,00,000 was issued to the buyer. The contract stipulated that the buyer would pay the bill within 30 days. At the time of payment, the buyer requested an extension, proposing a Letter of Credit (LC) with a 90-day validity and asking the supplier to collect the payment from the bank. The buyer then demanded an interest bill for the remaining 60 days.

The user wants to know if GST is applicable on this interest bill and, if so, under which service category.

Replies (3)

Dhirajlal Rambhia

SEO Sai Gr. Hosp.

208071 Points Joined July 2016

Under Section 15(2)(d) of the Central Goods and Services Tax (CGST) Act, 2017, the value of supply includes “interest or late fee or penalty for delayed payment of any consideration for any supply”. This means that if a supplier charges the buyer any interest due to delayed payment for goods, that amount forms part of the taxable value of the original supply of goods.

This interest is not treated as a separate financial service (such as a loan or deposit) exempt under Notification No. 12/2017–Central Tax (Rate), Entry 27, because the exemption applies only when the consideration represents “interest on a deposit, loan, or advance,” not when it arises from delayed payment for goods.

Thus, the interest billed to the buyer in this case is subject to GST under the heading of the same goods supplied, not under a separate service category.