GST on interest payment

This query is : Resolved

CA Praveen Chopra (Querist)
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13 February 2020 We are a registered public ltd company and procuring imported coal from overseas supplier. Now due to delay in payment, overseas supplier charges interest and raises debit note for same. Are we have to pay GST on that interest amount to be paid in $. ?

Bhaskaran Chackrapani Warrier

Bhaskaran Chackrapani Warrier (Expert)
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13 February 2020 Interest charged in relation to the supply of goods shall be included in the value of goods and will be liable to GST.

CA Praveen Chopra

CA Praveen Chopra (Querist)
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13 February 2020 Whether we have to pay GST under reverse charge ?

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Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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27 July 2024 When dealing with interest payments related to imported goods, such as coal, and considering the applicability of GST, several factors come into play. Here’s a detailed breakdown:

### 1. **GST on Interest Payments**

**Interest Payments on Delay:**
- **Interest on Delay:** When an overseas supplier charges interest due to delayed payment, this transaction is generally considered a supply of service. GST implications for such services are determined by whether the service is provided to a registered person in India and if it falls under the reverse charge mechanism (RCM).

### 2. **Applicability of GST on Interest Payments**

**Interest and GST:**
- **Nature of Interest Payments:** Interest charges on delayed payments are considered a supply of service under GST. However, interest itself is typically not subject to GST when it relates to delayed payment for goods or services. Instead, it is treated as a financial service.

**Reverse Charge Mechanism (RCM):**
- **RCM Applicability:** If the service (in this case, interest) is provided by a foreign supplier to a registered person in India, it falls under the reverse charge mechanism.
- **IGST Under RCM:** Under RCM, the recipient of the service (i.e., your company) is responsible for paying GST. For services imported into India, IGST is applicable. The rate of IGST is determined by the nature of the service.

### 3. **GST Rate and Payment**

**IGST Rate:**
- **Rate of Tax:** The GST rate for financial services, including interest payments, is generally 18%. Therefore, IGST at 18% is applicable under RCM for the interest charges.

**Payment of GST:**
- **Payment Process:** As the recipient of the service (interest payment in this case), you need to pay IGST under RCM. This involves:
- **Calculating IGST:** Calculate the IGST at 18% on the interest amount.
- **Filing in GST Returns:** Report the IGST paid under RCM in your GST returns, typically in GSTR-3B and GSTR-2.

**Documentation:**
- **Invoice and Debit Note:** Ensure you receive a debit note from the overseas supplier indicating the interest charges. You should also have proper documentation to support the payment of GST under RCM.

### 4. **Practical Steps**

1. **Verify Interest Charges:** Ensure that the interest charges are correctly documented and that they qualify as a taxable service under GST laws.
2. **Calculate IGST:** Calculate the IGST at 18% on the interest amount charged.
3. **Pay GST Under RCM:** Pay the IGST amount through the GST portal and ensure it is reflected in your GST returns.
4. **Maintain Records:** Keep all relevant documents, including the debit note and GST payment receipts, for record-keeping and compliance.

### Summary

1. **GST Applicability:** Interest payments on delayed payment for imported coal are generally considered a supply of service and may be subject to GST under the reverse charge mechanism.
2. **IGST Rate:** The applicable GST rate is 18% IGST under RCM.
3. **Payment and Reporting:** Pay IGST on the interest amount and report it in your GST returns.

For accurate and specific advice tailored to your situation, particularly if there are complexities or recent changes in regulations, consulting with a GST professional or tax advisor is recommended.