Interest on service tax

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

19 August 2014 Respected Members,

IS there any service tax on interest paid on late fee

A govt agency is taking some fee from client but client is paying fee late.

The provision for fee of that agency is Fee+ ST @ 12.36%

Now should I pay ST on FEE + Interest or FEE+ST + Interest on fee.

i.e. is their any service tax on interest charge by service provider for for late payment of fee.

Thank you

Please reply

Sumit Grover

Sumit Grover (Expert)
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19 August 2014 No service is levied on interest on delayed payment of any consideration for the provision of services.
The same is excluded by virtue of rule 6(2)(iv) of Service tax(determination of value) rules, 2006

Querist : Anonymous

Querist : Anonymous (Querist)

19 August 2014 above rule cover interest on loan. I am not talking about interest on loan.

Case is HSIIDC is charging transfer fee for transferring industrial plot in favor transferee. But transferee has to apply for same, but as transferee has applied late so they are charging interest along with fee (interest from date of execution of sale deed)

Now is ST applicable on interest or only transfer fee

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Sumit Grover

Sumit Grover (Expert)
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19 August 2014 Dear Interest on loan is covered by section 66D(Negative list).
The rule 6(2)(iv) amended w.e.f. 1st july'12 vide notification no. 24/2012 deals with the case queries by you.

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Querist : Anonymous

Querist : Anonymous (Querist)

20 August 2014 What about ST on Penalty component. Mean if there is also some penalty say transfer fee is ₹ 100 per sqm penalty ₹ 100 per sqm.

ST to be calculated on 100 or 200 (100+100)

Please tell

Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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01 August 2024 ### Service Tax on Interest and Penalty

Service Tax on interest and penalty can be complex, and the applicability often depends on the nature of the charges and the specific regulations under service tax law. Here’s how it generally applies:

#### **Interest on Late Fee:**

1. **Interest on Fee:**
- **Applicability of Service Tax:** Service Tax is generally not applicable to interest on late payment fees. Interest charged for the late payment of fees is not considered a service but a financial charge. Therefore, Service Tax should not be levied on this interest component.
- **Service Tax on Fees:** Service Tax is applicable to the original fee charged for the service. If the fee is ₹100 and Service Tax is 12.36%, the Service Tax would be ₹12.36 on the fee of ₹100.

2. **Example Calculation for Service Tax:**
- **Fee:** ₹100
- **Interest:** Not subject to Service Tax
- **Service Tax Rate:** 12.36%

**Service Tax Calculation:**
\[
\text{Service Tax} = \text{Fee} \times \text{Service Tax Rate} = ₹100 \times 12.36\% = ₹12.36
\]

3. **Penalty Component:**
- **Applicability of Service Tax:** If a penalty is levied, it is usually considered part of the fee for the service, and hence, Service Tax is applicable. In your case, if the transfer fee is ₹100 and the penalty is ₹100, Service Tax should be applied to the total amount (₹200).

**Example Calculation for Service Tax on Penalty:**
- **Transfer Fee:** ₹100
- **Penalty:** ₹100
- **Total Amount (Fee + Penalty):** ₹200
- **Service Tax Rate:** 12.36%

**Service Tax Calculation:**
\[
\text{Service Tax} = \text{Total Amount} \times \text{Service Tax Rate} = ₹200 \times 12.36\% = ₹24.72
\]

### Summary:

1. **Service Tax on Interest:** Service Tax is not applicable on the interest component for late payment of fees.
2. **Service Tax on Penalty:** Service Tax is applicable on penalties as they are considered part of the total fee charged.

For accurate compliance, it’s always advisable to consult with a tax professional or legal advisor familiar with the specific regulations and interpretations in your jurisdiction.