Yes, GST generally applies to a late payment fee or penalty if it is part of the consideration for a taxable supply. The late fee is typically taxed at the same GST rate as the original goods or services, as it is considered part of the transaction value under GST law.
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.
Do not charge the GST/HST on late-payment surcharges. GST/HST is payable only on the original invoiced amount.
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.
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.
Late payment and finance charges (monthly interest) are exempt from GST. Are cash advance fees subject to GST? No, they are exempt from GST.
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.
GST Late Fee Structure in India
This fee motivates prompt compliance. Here are the key elements of the GST late fee structure: Daily Late Fee: A late fee of ₹50 per day is paid on Central GST (CGST) and State GST (SGST). The cumulative amount of the late fee is ₹100/day of CGST and SGST combined.
Adding Late Payment Interest
Add interest to the the gross amount of the debt overdue, including VAT. However you can't charge VAT on the interest added. Also you can't claim statutory interest if there's a different rate of interest in your contract.
The rule had reduced the safe harbor limits on late fees that could be charged by large credit card issuers (those with over one million open accounts) from over $30 down to $8. The rule also forbade fee increases for repeat violations and removed the annual inflation indexing.
The GST rate on professional fees is 18%. It varies based on the kind of services which range from 5% to 18%.
10,000/-, in case of filing the return Form GSTR-7, after due date. late fee is capped at Rs 2,000/-, in case of delay in filing of Form GSTR-7, as per the changes in the Act. These changes in late fee amount would be applicable for returns for the tax period of June, 2021, onwards.
GST – Cash or Accrual
Those on an accrual basis will pay GST on their outstanding invoices when they lodge their BAS for the period when the invoice was raised. Those on a cash basis will pay the GST when they lodge their BAS for the period that they get paid for the invoice.
Payment and Settlement Services: Banks provide payment and settlement services such as NEFT, RTGS, and IMPS. These services are exempted from GST. Services provided to Basic Saving Bank Deposit (BSBD) Account Holders: Banks are required to provide certain services free of cost to BSBD account holders.
Standard late fee for invoices
While there is yet to be a universal answer regarding an appropriate rate, in most cases and across most industries, a late fee rate between 1% and 2% is often considered the standard.
Agricultural products, tuition fees, lending operations, real estate, books, transportation and other necessities are typically VAT-exempt transactions.
Thus, now late fee payable is ₹ 1000/- per return if return is filed within 30 days of the due date, otherwise ₹ 5000/- per return. The amount of late fee has to be paid before submission of return.
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.
A standard percentage of the total contract for each specified time an invoice goes unpaid. For example, if you set a 5% late fee every 30 days and you've contracted $5,000 of work, the fee would be $250 each month. Graduated. Increase your flat or percentage rate for every set amount of time the invoice goes unpaid.
Record Journal Vouchers for Interest, Penalty, Late Fee and Other Dues in GST
Interests, Fines, And Penalties
Most fines and penalties from government bodies like the ATO and city councils do not include GST and are not tax-deductible. However, late payment interest or fees charged by suppliers may or may not include GST based on the nature of the underlying supply.
Hence, it is apparent that interest received from a customer for late payment of an invoice is liable to GST. The same should also be disclosed in the GST Returns when the supply of goods or services for which such interest was charged.
Non-reportable Transactions > These transactions do not include GST as they are not goods or services. The list includes: Stamp Duty, Council Rates, Fines, interest etc. The value of these transactions is not included in the Business Activity Statement.