Clarification regarding applicability of GST on additional/penal interest.

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....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 account of delay in payment of EMI. 2. Doubts have been raised regarding the applicability of GST on additional / penal interest on the overdue loan i.e. whether it would be exempt from GST in terms of Sl. No. 27 of notification 38/1/2017-Fin(R&C)(12/2017-Rate) dated 30^th June 2017 or such penal interest would be treated as consideration for liquidated damages [amounting to a separate taxable supply of services under GS....

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....purchasing the mobile from M/S ABC Ltd. The terms of the loan from 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 Goa GST 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.38/1/2017-Fin(R&C)(12/2017-Rate) dated the 30^th June 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....

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....pply of mobile by X to Y would be Rs. 40,000/- for the purpose of levy of GST. 6. It is further 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 Goa GST 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 38/1/2017-Fin(R&C)(12/2017-Rate) dated the 30th June, 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 not qualify to be interest ....