Clarification regarding applicability of GST on additional / penal interest

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..... ayment 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 ac .....

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..... rs conferred by section 168 of the HGST Act, hereby issues the following clarification. 3. Generally, following two transaction options involving EMI are prevalent in the trade:- * Case - 1: X sells a mobile phone to Y. The cost of mobile phone is ₹ 40,000/-. However, X gives Y an option to pay in installments, ₹ 11,000/ every month before 10th day of the following month, over next .....

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..... 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 HGST Act, the value of supply shall include "interest or late fee or penalty for delayed payment of any consideration for any supply". Further in terms of Serial Numbe .....

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..... listed in para 3 above would be as follows: * Case 1: As per the provisions of sub-clause (d) of sub-section (2) of section 15 of the HGST Act, the amount of penal interest is to be included in the value of supply. The transaction between X and Y is for supply of taxable goods i.e. mobile phone. Accordingly, the penal interest would be taxable as it would be included in the value of the mobile, .....

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..... 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 notification No.47/ST-2, dated the 30.06.2017. It is further clarified that any service fee/charge or any other charges that are levied by M/s ABC Ltd. in respect of the transaction related to extending deposits, loans or advances does .....

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