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Clarification regarding applicability of GST on additional / penal interest.

Dispur the 1st July, 2019. Subject: No. CT/GST-15/Pt-1/2017/26.- Various representations have been received from the trade and industry regarding applicability of GST on delayed payment charges in case of late payment of Equated Monthly Instalments (EMI). An EMI is a fixed amount paid by a borrower to a lender at a specified date every calendar month. EMIs are used to pay off both interest and principal every month, so that over a specified period, the loan is fully paid off along with interest. In cases where the EMI is not paid at the scheduled time, there is a levy of additional / penal interest on account of delay in payment of EMI. 2. Doubts have been raised regarding the applicability of GST on additional / penal interest on the overd .....

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sideration for which is the interest of 2.5% per month and an additional / penal interest amounting to ₹ 500/- per month for each delay in payment. Case-2: X sells a mobile phone to Y. The cost of mobile phone is ₹ 40,000/-, Y has the option to avail a loan at interest of 2.5% per month for purchasing the mobile from M/S ABC Ltd. The terms of the loan from M/S ABC Ltd. allows Y a period of four months to repay the loan and an additional / penal interest @ 1.25% per month for any delay in payment. 4. As per the provisions of sub-clause (d) of sub-section (2) of section 15 of the Assam GST Act, the value of supply shall include interest or late fee or penalty for delayed payment of any consideration for any supply . Further in ter .....

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9th June 2017]. Accordingly, in this case the penal interest charged thereon on a transaction between Y and M/S ABC Ltd. would not be subject to GST, as the same would not be covered under notification No. 12/2017-State Tax (Rate) [FTX.56/2017/25 dated 29th June 2017]. The value of supply of mobile by X to Y would be ₹ 40,000/- for the purpose of levy of GST. 6. It is further clarified that the transaction of levy of additional / penal interest does not fall within the ambit of entry 5(e) of Schedule II of the Assam GST Act i.e. agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act , as this levy of additional / penal interest satisfies the definition of interest as contained in notif .....

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