Ushabala Chits Pvt. Ltd. – Andhra Pradesh AAR

Whether the interest/penalty collected for delay in payment from customers forms a supply under GST?

The additional amount charged is not ‘interest’ in nature. To qualify the amount as interest, there must be some specific percentage to be charged on a daily / monthly or some periodic basis. Hence the amount charged cannot be qualified as interest. The additional amount being charged on delayed payment is in the nature of a penalty for failure to make payment within the stipulated time.

Such a penalty is leviable to same rate as principal supply of financial and related services.