CBIC vide Circular No. 102/21/2019 – GST dated June 28, 2019, has issued a clarification regarding the applicability of GST on additional/penal interest on delayed payment charges in case of late payment of Equated Monthly Instalments (“EMI”).
It was 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 CGST 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 Notification No. 12/2017- Central Tax (Rate) dated June 28, 2017.
Further as per the provisions of sub-clause (d) of sub-section (2) of section 15 of the CGST 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 Sl. No. 27 of Notification No. 12/2017- Central Tax (Rate) dated the June 28, 2017. “services by way of (a) extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount (other than interest involved in credit card services)” is exempted.
Complete Circular can be accessed at: http://www.a2ztaxcorp.com/wp-content/uploads/2019/06/circular-cgst-102.pdf