|GST on Penal Interest of EMIs|
Saturday, June 29, 2019
Clarification Regarding GST on Penal Interest for delayed payment on EMIs.
CBIC has issued Circular No. 102/2019 to clarify the taxability of Penal Interest on delayed EMIs.
Generally, following two transaction options involving EMI are prevalent in the trade:-
Case – 1: Where the Seller himself extends the benefits of EMI to the buyer:
Seller ---> EMI ---> Buyer
X sells a mobile phone to Y. The cost of a mobile phone is Rs 40,000/-. However, X gives Y an option to pay in installments, Rs 11,000/- every month before the 10th day of the following month, over next four months (Rs 11,000/- *4 = Rs. 44,000/- ). Further, as per the contract, if there is any delay in payment by Y beyond the scheduled date, Y would be liable to pay additional/penal interest amounting to Rs. 500/- per month for the delay. In some instances, X is charging Y Rs. 40,000/- for the mobile and is separately issuing another invoice for providing the services of extending loans to Y, the consideration for which is the interest of 2.5% per month and an additional/penal interest amounting to Rs. 500/- per month for each delay in payment.
Case – 2: Where the third party (Such as Bajaj Finserve) extends the benefits of EMI to the buyer:
Seller ---> Sale ---> Buyer, Third Party ---> EMI ---> Buyer
X sells a mobile phone to Y. The cost of a mobile phone is Rs 40,000/-. Y has the option to avail a loan at interest of 2.5% per month for 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.
In case 1: Penal Interest will be part of Taxable value for GST.
In case 2: Penal Interest will not be part of Taxable value for GST.
Note: Any Service fees or service charge by the Third Party (Such as Bajaj Finserve) shall not be exempt from GST.
Our office has developed a Computation for GSTR 3B which may be used before uploading the return on the portal as a base data. The file c...
Composition Scheme for small Service Providers CBIC has issued notification 2/2019 CT(R) which provides a composition scheme for the...
E-Invoice and QR Code made compulsory for Class of Taxpayer under GST CBIC has introduced multiple Notifications on 13th December 201...
Background CBIC has amended sec. 88A to alter the mechanism of ITC setoff. i.e. IGST credit has to be completely utilized before utili...