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Interest on delay payment

18 May 2020

Dear sir

we sold material to a company on Aug 19, but still we didn't receive amount, so we decided to raise Invoice/debit note for interest on delay payment.

1. My doubt is, whether the tax is applicable on interest or not.

2. we should raise Invoice or debit note.

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4 Replies

prasad Nilugal ( GST Practitioner & Accounts ) (14536 Points)
Replied 18 May 2020

In my opinion , you should raise Debit Note for Interest or delay payment charges . GST is applicable on Interest or late fees as per section 15(d) of the CGST act 2017 .

please confirm with others also.

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jashwanth (CA-PRACTICE) (400 Points)
Replied 18 May 2020

If there is a contract which specifies interest will be charged on delay payment then GST need to be levied on interest portion also,otherwise not!

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Shivam RC (Student) (23683 Points)
Replied 18 May 2020

Q1). Whether Tax is applicable on Interest on Delayed Payment of Consideration or Not ???

Answer : YES, GST would be applicable Sir on Delayed Payment of Consideration. As per the Provision of Section 15 sub-section (2) clause (d) of the CGST Act 2017, "Interest or Late Fee or Penalty for Delayed Payment of any consideration for any supply" should be included in TRANSACTION VALUE. And GST is levied on "TRANSACTION VALUE". Hence GST would be applicable Sir on Interest portion Sir.

Q2). We should raise Invoice or Debit Note ???

ANSWER : As per the Provision of Section 34(3) of the CGST Act 2017, "Where one or more tax invoices have been issued for supply of any goods or services or both and the Taxable Value or Tax Charged in that tax invoice is found to be less than the taxable value or tax payable in respect of such supply, the registered person, who has supplied such goods or services or both, shall issue to the recipient one or more "DEBIT NOTES" for supplies made in a financial year containing such particulars as may be prescribed.

Since in your case, your Taxable Value as declared in the Tax Invoice issued in August 2019 is less than the Actual Taxable Value ( that is to say the Interest on Delayed Payment of Consideration was not declared that time ), You have to issue "DEBIT NOTE" to the Recipient regarding interest on Delayed Payment of Consideration.

Q3). What would be the Time of Supply ???

ANSWER : As per the Provision of Section 12(6) of the CGST Act 2017, "The time of Supply to the extent it relates to an addition in the value of Supply by way of INTEREST, LATE FEE or PENALTY for Delayed Payment of any Consideration shall be the 'date on which the supplier receives such addition in value' ".

That is to say, the point of Taxation would be the time when you receive the interest i.e. "CASH BASIS".

Hope you understood Sir...

Regards
Shivam RC.

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