Whether a late payment penalty is subject to GST depends on its nature: it is generally not subject to GST if it is considered penalty interest (a financial supply), but it can be subject to GST if it is part of the consideration for a taxable supply (a fee for late payment). In some jurisdictions, specifically for GST returns, late filing fees are administrative charges and not subject to GST.
1. Late payment fees are part of the main supply (like electricity bills, telecom services, or property transactions). 2. GST applies to these charges at the same rate as the main product/service.
This will depend on the facts of each case. Where the late payment penalty is consideration for a financial supply (for example, a supply of an interest in a credit arrangement), there is no need for the supplier to account for GST for that supply.
A penalty is a punishment imposed by law for committing an offence or failing to do something that was the duty of a party to do. A penalty can be both corporal or pecuniary, civil or criminal. Both corporal (jail) and pecuniary (monetary) penalties are applicable under GST.
Late payment and finance charges (monthly interest) are exempt from GST. Are cash advance fees subject to GST? No, they are exempt from GST.
Penalty interest payments are an input taxed supply under section 40-5 of A New Tax System (Goods and Services Tax) Act 1999. Therefore, it is not subject to GST and there is no entitlement to an input tax credit for the things that are acquired to make the financial supply.
Avail the new GST Amnesty Scheme 2024, introduced via Section 128A for conditional waiver of interest and penalties for tax demands from FY 2017-18 to 2019-20 under Section 73. To qualify, taxpayers must fully pay outstanding tax dues by March 31, 2025.
Common BAS Excluded items include wages, super, bank transfers, owner drawings, income tax payments, fines, donations, and certain government charges. Use “BAS Excluded” in Xero for genuinely out-of-scope items, and use GST or GST-free codes for reportable sales and purchases.
Penalty and Fine
Therefore, fine and penalty are not deductible for income tax purposes. Moreover, there are no GST on fine and penalty, so taxpayer cannot claim input tax for fine and penalty.
Under the GST law, common penalties include a late fees and interest for delayed GST return filing. For tax evasion without fraudulent intent, a penalty of 10% of the tax due, subject to a minimum of Rs. 10,000, is imposed; with fraudulent intent, the penalty equals the tax evaded, with a minimum of Rs.
Late payment fees being subject to GST is consistent with a broad-based tax. In this respect, it is important to differentiate between late payment fees, which can be seen as an increase in the consideration of the underlying goods and services, and default or penalty interest, which is an exempt financial service.
GST Late fees: - As per GST Law, Late Fees is to be levied in case of delay in filing of GST Returns. Late Fees cannot be construed as a "Penalty" or "Offence." The same is compensatory in nature and not penal. Therefore, it is allowed under Income-tax Act.
The IRS explicitly states that fines and penalties paid to a government for the violation of any law are not deductible. This includes penalties for late tax payments, violations of environmental regulations, and other infractions.
Do not charge the GST/HST on late-payment surcharges. GST/HST is payable only on the original invoiced amount.
1. Login into GST portal: Navigate to > Services > User Services > My Applications. 2. On Navigating to 'My Applications' page, the taxpayer has to select 'Apply for Waiver Scheme under Section 128A' option under 'Application type' dropdown.
Penalty on Missing the GST Due Date:
The maximum penalty that may be imposed is Rs. 5,000. The taxpayer will be required to pay interest on late payment of GST at a rate of 18% annually in addition to the late payment penalty.
2.5 Thus, as recommended by the 55th GST Council, it is hereby clarified that no GST is payable on the penal charges levied by Regulated Entities, in compliance with RBI directions dated 18.08. 2023, for non-compliance with material terms and conditions of loan contract by the borrower.
It has been clarified that the interest as well as the penal interest charged in relation to the supply of goods and services shall be included the value of goods and services and will be liable to GST.
What is the standard late fee for invoices? Late fees for invoices are commonly 1-2% of the total invoice amount or a maximum of 10% annual interest rate.
Generally, a statutory fine or penalty is not subject to GST as there is no supply made in relation to the payment.
These include bank transfers between accounts, stamp duty, depreciation and salary/wages. These are purchases/sales that have a 0% GST rate. Examples include, purchasing items from overseas (exports); purchasing items from within Australia that are not subject to GST, eg. fresh food, some education.
Common Examples of GST Exempt Transactions:
Financial services – Most banking services, interest payments, and insurance premiums. Residential rent – Rental income from residential properties. Donated goods and services – Items or services that are given away without payment.
In Conclusion…
Penalties are fines associated with documents. Interest is only associated with payments. In short, penalties and interest serve different purposes. Penalties apply when documents are filed late, while interest applies when payments are made late.
If your GST liability is ₹50,000 and payment is delayed by 20 days: Interest = ₹50,000 × 18% × 20 ÷ 365 = ₹493.
The assessee claimed deduction for interest and late fees paid on account of delay in filing GST returns. The authorities disallowed the claim, invoking Explanation 1 to Section 37(1) of the Income Tax Act.