GST on interest for late payment of Invoice value

[Ashish Diwedi]

We are registered under GST and are supplying taxable goods as well as exempt goods to our customers. In case of non payment of Invoice value in time, we charge interest to the customers. What shall be the GST implication in case of (i) Taxable goods & (ii) Exempt Goods.
If GST is applicable, what shall be the rate of GST for interest amount collected? Will it be 18% of the rate or the rate of GST as applicable to goods?

[Shilpi Jain]

Gst on interest will be the same rate as applicable to the goods in respect of which interest is collected since it is an addition to the value of supply u/s 15.

[ABHISHEK TRIPATHI]

Dear Dinesh Ji,

Let’s make it interesting.

So, if 15(2)(c) requires such interest to be added in the valuation then in such case are you supposed to raise debit note and get the credit. Food for thought.

[Ashish Diwedi]

Dear Shilpi,
So are we saying that in case of exempt goods where GST is NIL, interest for late payment would also attract NIL rate of GST.

[Shilpi Jain]

Yes. This is because the interest is added as per section 15 and thereby is part of value of supply. So not gst on interest collected in respect of exempt supply.

AI Summary

GST on interest: interest taxed at the rate of the underlying supply; exempt supply interest not taxable.
Interest charged for late payment is included in the value of the supply under section 15 and therefore is taxed at the same rate as the underlying taxable supply; interest relating to an exempt supply is not subject to GST.