CBIC Clarifies Applicability of GST on Additional or Penal Interest


CBIC has issued a circular on June 28, 2019 for clarifying the issues regarding the applicability of GST on additional or penal interest. The circular seeks to clarify whether the amount received for delayed payment charges in case where Equated Monthly Installments (EMI) is not paid at the scheduled time, taxable under GST.

The Clarifications issued are as follows:

  1. Where the amount of EMI has been fixed by the vendor and as per the terms of contract the buyer has agreed to pay a fixed amount of additional or penal interest in case of delayed payment, the amount of penal interest will be taxable and will be included in the value of the goods.
  2. Where the buyer has an option to avail loan at a fixed interest  rate and the terms of loan provides for the repayment of loan over a fixed period of time and a fixed rate of additional or penal interest in case of delayed payment. Then, the amount of penal interest will not be taxable under GST and will be exempt according to the notification no. 12/2017-Central Tax (Rate) dated June 28, 2017.

Further, it is also clarified that any fees or charges charged by seller with respect to extending loans such charges will not fall under the ambit of the term ‘interest’ and will be taxable.

Click here to see circular.

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