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Can gst late fee be deducted from income tax?

K ILANGO (GST PRACTITIONER) (41 Points)

19 July 2018

Can the amount paid as late fee in GST be retreated as a deduction from Income Tax?

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16 Replies

Dhirajlal Rambhia (SEO Sai Gr. Hosp.) (177824 Points)
Replied 19 July 2018

YES

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Brahma nanda Agrawal (KOLKATA) (331 Points)
Replied 19 July 2018

Under Section 37(1) Late fees on GST is not an allowable expenses.
Hence Late fees paid on GST is not allowed while calculating PGBP

1 Like

Pratik Surve (Assistant Professor ) (571 Points)
Replied 19 July 2018

Any late fee or penalty is not allowable expenses in income from business and profession as per income tax rules.

Dhirajlal Rambhia (SEO Sai Gr. Hosp.) (177824 Points)
Replied 19 July 2018

Yes, you are correct.... I had mistaken it for interest.......

Thanks for rectification....

Nilesh Gami (Auditor) (222 Points)
Replied 10 May 2019

any reference/ sections for disallowance of GST late fees ?

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CA. RAUNAK AGARWAL (CHARATERED ACCOUNTANT) (749 Points)
Replied 28 May 2019

Explanation 1 of Section 37, Explanation 1.—For the removal of doubts, it is hereby declared that any expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the purpose of business or profession and no deduction or allowance shall be made in respect of such expenditure.

1 Like

Harmesh Jain (GST Practitioners) (22 Points)
Replied 13 September 2019

Late fee under GST is not an offence in nature. Hence it is not an dis allowable expenditure as per income tax act

Vinod Vyas (Analyst) (258 Points)
Replied 16 September 2019

Late fee (as in question) is not paid for a purpose which is an offence or prohibited. In fact the late fee are paid for the purpose of the compliance with Act.

Also, this is not an offence and prohibited under any law.

Suresh Thiyagarajan (Student) (3986 Points)
Replied 16 September 2019

1. First, let us examine the nature of expenses which are disallowed under sec 37. If the payment is in the nature of infraction of law then it will not be allowed as deduction. The penalty is an example for infraction of law and thus it will not be allowed as business expenditure u/s 37.
2. Similarly, IT and interest u/s 234 ABC will not be allowed as deductions for late filing of income tax and for deferment of advance tax. This is also not allowed u/s 40(a)(ii).
3. However the above cannot be equated with GST as tax paid under GST is allowed as deductions subject to sec 43B.
4. Now, whether late fee under GST will be covered under sec 37 and subsequently be allowed as a deduction ? or will it be treated in the same way as sec 234ABC interest and disallow it u/s 40(a)(ii)...?
5. Let us first go through sec 40(a)(ii) where it only deals with the amount in relation to the rate of tax levied on profits and gains from business or profession. So GST late fee will not be disallowed under sec 40(a)(ii).
6. The condition to be satisfied with respect to the allowance of deductions u/s 37 is that it should be for the purpose of business or profession and it should not be paid for infraction of laws. Now the question is whether GST late fee will come under infraction of law..?
7. There is a possibility that it may be viewed as a penalty and subsequently not allowed as deductions. There is nowhere it is specified that interest on late payment is not a penalty. It could be viewed as a penalty for violation of law which ultimately the assessee is responsible. Hence, it may not be allowed as deduction u/s 37.
8. Yet to receive any official notification or explanation on the same.
Please correct me if the above interpretation has an alternative view.

1 Like

CA Nazir N Dabhoiwala (Manager - Audit & Taxation) (22 Points)
Replied 17 October 2020

FEATURED | HEADLINES | INCOME TAX | NEWSLETTER | TOP STORIES Interest on Late deposit of VAT, Service Tax, TDS are allowable Business Expenditure: ITAT [Read Order] July 22, 2019 1:24 pm| By : Rasheela Basheer The Income Tax Appellate Tribunal (ITAT), Kolkata bench has held that the interest paid by the assessee on late deposit of VAT, Service Tax, TDS etc, is not penal in nature, allowable as business expenditure under section 37(1) of the Income Tax Act, 1961. The assessee filed its return of income for the A.Y. 2014-15 on 26.09.2014 and the assessment was later completed. Later on, the learned Principal Commissioner of Income Tax, Kolkata exercised his jurisdiction under section 263 of the Income Tax Act, 1961 to revise the order passed by AO under section 143(3) of the Act on the ground that assessee company has debited expenditure under the head Interest on delay payment of VAT, Service Tax and TDS totalling to Rs. 3,45,633/- and since such expenses are penal in nature, is not deductible u/s 37(1) of the Income Tax Act, 1961. The Tribunal noted that assessee has himself confessed and accepted that the (interest on VAT, service tax, TDS etc.) expenses are not allowable expenditure under section 37(1) of the Act, being penal in nature, does not mean that these expenses should be disallowed. “If these expenses (interest on late deposit of VAT, service tax, TDS etc expense) are allowable under the Act then these can not be disallowed merely because the assessee has admitted. Right expenditure ought to be allowed and the right income ought to be taxed. Therefore, the assessing officer, while making the assessment U/s 143(3) took a possible view that these expenses are allowable under section 37(1) of the Act, hence he did not disallow them. Hence, Assessing Officer has adopted one of the courses permissible in law therefore, order made by AO under section 143(3) of the Act, is neither erroneous nor prejudicial to the interest of the Revenue,” the Tribunal said. Quashing the order passed by the under section 263 of the Act, the Tribunal observed that “Therefore, it is abundantly clear that interest on late deposit of VAT, service tax, TDS etc are allowable expenditure under section 37(1) of the Act and the assessing officer has taken a possible view therefore order passed by the assessing officer U/s 143(3) dated 11.05.2016, is neither erroneous nor prejudicial to the interest of Revenue and cannot be held to be unsustainable in law,” Read more at: https://www.taxscan.in/interest-late-deposit-vat-service-tax-tds-allowable-business-expenditure-itat/37340/

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Ajay Prem Kaushal Pareek (2 Points)
Replied 14 January 2021

Late fee paid for delay in filing of GST return is of compensatory nature, late filing of GST is not an infraction of law therefore allowable as business expenditure U/s 37

Indira Priyadarsini Kota (Practice) (590 Points)
Replied 19 January 2021

Late fees paid for delay in filing GST return is allowed as an expense u/s 37 of income tax act as it is not an offence or prohibited under any act

Rishabh Bhatia (2 Points)
Replied 03 January 2023

Late fees & Penalty is paid for delay in filing of GST return. This is of compensatory nature, further, late filing of GST is not an infraction of law therefore allowable as business expenditure u/s 37 of Income Tax Act, 1961.

Read more at: https://www.caclubindia.com/forum/can-gst-late-fee-be-deducted-from-income-tax--473520.asp

CA Susheel Gupta (CA, LLB) (72 Points)
Replied 03 January 2023

Late Fees are Penalty are not same.

Late Fees under any law is compensatory in nature and generally does not involves any procedure of giving opportunity to the assessee. It is an allowable expenses under section 37(1).

Whereas penalty for breach of any law is of penal in nature and a person can be penalized only after giving opportunity of being heard. Penalty being of penal nature is not an allowable expense.