Service Tax liability on Late payment charges

[Sanjeev Chauhan]

Respected All,

A service provider collect late payment charges from his customers, is he liable to pay service tax on such late payment charges?

Regards,

Sanjeev

[Brijesh Verma]

Dear Sanjeev

Refer rule 6 of the Service Tax (Determination of Value) Rules, 2006.

(2) Subject to the provisions contained in sub-rule (1), the value of any taxable service, as the case may be, does not include-

      (i) initial deposit made by the subscriber at the time of application for telephone connection or pager or facsimile (FAX) or telegraph or telex or for leased circuit;

      (ii)  the airfare collected by air travel agent in respect of service provided by him;

      (iii) the rail fare collected by ¹[rail travel agent] in respect of service provided by him;

      ⁶[(iv) interest on delayed payment of any consideration for the provision of services or sale of property, whether moveable or immoveable];

      ²[(v) the taxes levied by any Government on any passenger travelling by air, if shown separately on the ticket, or the invoice for such ticket, issued to the passenger.]

     ⁷[(vi) accidental damages due to unforeseen actions not relatable to the provision of service; and

      (vii) subsidies and grants disbursed by the Government, not directly affecting the value of service.]

[Sanjeev Chauhan]

Thanks a lot Sir.

 

[MANDAVILLI RAMAKRISHNA]

if and only if, you credited the interest collected account then no need to pay ST 

if you credit Misc. receipts or other income account, you have to pay ST

AI Summary

Interest on delayed payment excluded from service value; accounting treatment can determine whether service tax applies. Under the Service Tax (Determination of Value) Rules, 2006, interest on delayed payment for provision of services is excluded from the value of taxable service; however, if late payment charges are recorded as miscellaneous receipts rather than as interest, they may be treated as part of taxable consideration and attract service tax.