GST on Penalty Charges

According to Section 15(2)(d) of the CGST Act, value of supply includes “interest or late fee or penalty for delayed payment of any consideration for any supply,” so GST is chargeable on such penalties as part of the value of supply. When a supplier issues a penalty debit note for delayed performance, short supply, or contract breach, and this penalty is agreed in the contract or purchase order, GST should be levied at the same rate as the principal supply.