GST on penal interest: taxable when charged by seller as part of supply value; exempt when charged by lender. Where penal interest is levied by the seller as part of an instalment sale, it must be included in the value of the taxable supply and is subject to GST. Where penal interest is charged by a separate lender as part of a loan, such interest qualifies as exempt interest under the loan-interest exemption and is not subject to GST. Penal interest that meets the notification's definition of 'interest' is not to be treated as liquidated damages; non-interest service charges by a lender remain taxable.
Cases where this provision is explicitly mentioned in the judgment/order text; may not be exhaustive. To view the complete list of cases mentioning this section, Click here.
Provisions expressly mentioned in the judgment/order text.
GST on penal interest: taxable when charged by seller as part of supply value; exempt when charged by lender.
Where penal interest is levied by the seller as part of an instalment sale, it must be included in the value of the taxable supply and is subject to GST. Where penal interest is charged by a separate lender as part of a loan, such interest qualifies as exempt interest under the loan-interest exemption and is not subject to GST. Penal interest that meets the notification's definition of "interest" is not to be treated as liquidated damages; non-interest service charges by a lender remain taxable.
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