{"id":59592,"date":"2025-02-05T14:58:49","date_gmt":"2025-02-05T09:28:49","guid":{"rendered":"https:\/\/piceapp.com\/blogs\/?p=59592"},"modified":"2025-02-05T14:58:54","modified_gmt":"2025-02-05T09:28:54","slug":"gst-on-interest-charged-to-late-paying-customer","status":"publish","type":"post","link":"https:\/\/piceapp.com\/blogs\/gst-on-interest-charged-to-late-paying-customer\/","title":{"rendered":"GST on Interest Charged to late Paying Customer"},"content":{"rendered":"\n<div class=\"wp-block-group has-background\" style=\"background-color:#f2f5f9\"><div class=\"wp-block-group__inner-container is-layout-constrained wp-block-group-is-layout-constrained\">\n<h3 class=\"wp-block-heading\"><strong>Key Takeaways<\/strong><\/h3>\n\n\n\n<ul class=\"wp-block-list\">\n<li>GST applies to interest on delayed payments as part of the transaction value.<\/li>\n\n\n\n<li>The GST rate on interest is the same as the GST rate on the original supply.<\/li>\n\n\n\n<li>GST on interest is payable when the interest is actually received, not when it is due.<\/li>\n\n\n\n<li>No GST is applicable if the supplier waives the interest on delayed payment.<\/li>\n\n\n\n<li>Failure to pay GST on interest can lead to penalties and legal consequences.<\/li>\n<\/ul>\n<\/div><\/div>\n\n\n\n<p>The introduction of GST (Goods and Services Tax) in 2017 necessitates GST payment for the supply of goods and services. GST regulations further have provisions for late fees, interests, and penalties for late GST payments or GST returns filing.<\/p>\n\n\n\n<p>Suppliers can further charge interest for late payment along with GST from customers as compensation. Explore the scenarios when GST on interest charged to<a href=\"https:\/\/www.freeagent.com\/en\/guides\/invoicing\/5-types-of-late-paying-clients-and-how-to-deal-with-them\/\" target=\"_blank\" rel=\"noopener\"> late-paying customers <\/a>apply.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Recovery of Penalty\/Interest on Delayed Payment<\/strong><\/h2>\n\n\n\n<figure class=\"wp-block-image size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"900\" height=\"506\" src=\"https:\/\/piceapp.com\/blogs\/wp-content\/uploads\/2025\/02\/Recovery-of-PenaltyInterest-on-Delayed-Payment.png\" alt=\"Recovery of PenaltyInterest on Delayed Payment\" class=\"wp-image-66301\" title=\"\" srcset=\"https:\/\/piceapp.com\/blogs\/wp-content\/uploads\/2025\/02\/Recovery-of-PenaltyInterest-on-Delayed-Payment.png 900w, https:\/\/piceapp.com\/blogs\/wp-content\/uploads\/2025\/02\/Recovery-of-PenaltyInterest-on-Delayed-Payment-300x169.png 300w, https:\/\/piceapp.com\/blogs\/wp-content\/uploads\/2025\/02\/Recovery-of-PenaltyInterest-on-Delayed-Payment-150x84.png 150w, https:\/\/piceapp.com\/blogs\/wp-content\/uploads\/2025\/02\/Recovery-of-PenaltyInterest-on-Delayed-Payment-768x432.png 768w\" sizes=\"auto, (max-width: 900px) 100vw, 900px\" \/><figcaption><\/figcaption><\/figure>\n\n\n\n<p>If a supplier charges an interest for delayed payment pertaining to the supply of goods and services, it is essential to pay the interest. Further, it is essential to pay the applicable GST on the supply amount payable and the interest charged to comply with GST laws. Non-payment of GST on interest indicates a deviation from the GST regulations and might lead to adverse <a href=\"https:\/\/www.sra.org.uk\/consumers\/choosing\/legal-issue\/\" target=\"_blank\" rel=\"noopener\">legal implications<\/a> or penalties.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Is GST on Interest on Delayed Payment Applicable?<\/strong><\/h2>\n\n\n\n<p>The transaction value of the supply includes the interest charged by a registered person on delayed payment for a specific supply, from a customer. As a result, GST is applicable on the interest on delayed payment for the concerned supply.<\/p>\n\n\n\n<figure class=\"wp-block-embed is-type-video is-provider-youtube wp-block-embed-youtube wp-embed-aspect-16-9 wp-has-aspect-ratio\"><div class=\"wp-block-embed__wrapper\">\n<iframe loading=\"lazy\" title=\"Interest on Delayed Payment of GST and wrongly availed Credit || CA Bimal Jain\" width=\"640\" height=\"360\" src=\"https:\/\/www.youtube.com\/embed\/I3_mCVZwYDg?feature=oembed\" frameborder=\"0\" allow=\"accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture; web-share\" referrerpolicy=\"strict-origin-when-cross-origin\" allowfullscreen><\/iframe>\n<\/div><\/figure>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>What Rate of GST Will Be Applicable on Interest?<\/strong><\/h2>\n\n\n\n<p>The GST rate applicable for the supply of goods or services is the GST rate that applies to the interest charged on delayed payments. Consider the example below, elaborating on the scenario:<\/p>\n\n\n\n<p>Mr. Shyam in Karnataka supplied a generator amounting to \u20b95,00,000 to Miss Radha in Tamil Nadu on 1st November 2018. The due date for payment based on the terms of payment is 15th November 2018. However, Miss Radha defaulted on <a href=\"https:\/\/www.holded.com\/blog\/advance-payment-how-is-it-accounted-for\" target=\"_blank\" rel=\"noopener\">payment for supplies <\/a>and paid on 15th December 2018, wherein there was a delay in payment by a month.<\/p>\n\n\n\n<p>The applicable interest rate or late payment charges is 12% for every day of delay for recovery of payment. Thus, the amount of interest charged each day is \u20b95,000. As the applicable GST rate on the generator is 18%, the same<a href=\"https:\/\/www.maxlifeinsurance.com\/blog\/tax-savings\/income-tax-slab-2023-24\" target=\"_blank\" rel=\"noopener\"> rate of tax <\/a>will apply to GST on the interest charged. Further, for the interstate supply, the IGST (Integrated Goods and Services Tax) amount is \u20b9900.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Is GST liable to be paid on interest on the day it is due or the day it is paid?<\/strong><\/h2>\n\n\n\n<figure class=\"wp-block-image size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"900\" height=\"506\" src=\"https:\/\/piceapp.com\/blogs\/wp-content\/uploads\/2025\/02\/Is-GST-liable-to-be-paid-on-interest-on-the-day-it-is-due-or-the-day-it-is-paid.png\" alt=\"Is GST liable to be paid on interest on the day it is due or the day it is paid\" class=\"wp-image-66304\" title=\"\" srcset=\"https:\/\/piceapp.com\/blogs\/wp-content\/uploads\/2025\/02\/Is-GST-liable-to-be-paid-on-interest-on-the-day-it-is-due-or-the-day-it-is-paid.png 900w, https:\/\/piceapp.com\/blogs\/wp-content\/uploads\/2025\/02\/Is-GST-liable-to-be-paid-on-interest-on-the-day-it-is-due-or-the-day-it-is-paid-300x169.png 300w, https:\/\/piceapp.com\/blogs\/wp-content\/uploads\/2025\/02\/Is-GST-liable-to-be-paid-on-interest-on-the-day-it-is-due-or-the-day-it-is-paid-150x84.png 150w, https:\/\/piceapp.com\/blogs\/wp-content\/uploads\/2025\/02\/Is-GST-liable-to-be-paid-on-interest-on-the-day-it-is-due-or-the-day-it-is-paid-768x432.png 768w\" sizes=\"auto, (max-width: 900px) 100vw, 900px\" \/><figcaption><\/figcaption><\/figure>\n\n\n\n<p>The liability to pay GST on the interest charged is on the day you pay the interest and not the day the interest is due. Considering the example in the previous section, Mr. Shyam has the liability to pay GST on the interest charged on 15th December 2018 and not after the due date, which was after 15th November 2018.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Is GST Applicable on Interest Even if the Supplier Waives It Off?<\/strong><\/h2>\n\n\n\n<p>In case the supplier decides to waive off the interest on delayed payment for the customer, GST on the interest amount will not apply. Considering the above example, if Mr. Shyam decides to waive off the interest of \u20b9900 for Miss Radha, no GST will apply to the interest amount.<\/p>\n\n\n\n<p>However, GST on interest received will apply to <a href=\"https:\/\/www.chaserhq.com\/blog\/what-is-a-debtor-and-what-is-a-creditor\" target=\"_blank\" rel=\"noopener\">debtors<\/a> of the business. As a result, it is mandatory to include interest charged in the transaction value wherein the GST liability arises.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Conclusion<\/strong><\/h2>\n\n\n\n<p>GST on interest charged to late-paying customers applies when the supplier charges interest for delayed payment, as a late payment fee, for a particular supply. However, no GST is applicable on the interest if the supplier decides to waive off the interest on delayed payment.<\/p>\n\n\n\n<p>To avoid paying additional interest and GST on it, ensure you consider payments on time to suppliers. In case, the supplier charges an interest, you need to pay GST at the same tax rate applicable to GST of the concerned supply.<\/p>\n\n\n\n<p class=\"has-background\" style=\"background-color:#f2f5f9\">\ud83d\udca1If you want to streamline your payment and make GST payments via credit card, consider using\u00a0<a href=\"https:\/\/piceapp.com\/\">the PICE App<\/a>. Explore the PICE App today and take your business to new heights.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>FAQs<\/strong><\/h3>\n\n\n<div id=\"rank-math-faq\" class=\"rank-math-block\">\n<div class=\"rank-math-list \">\n<div id=\"faq-question-1738737412294\" class=\"rank-math-list-item\">\n<h3 class=\"rank-math-question \"><strong><strong>Is GST applicable on interest charged for late payment of invoices?<\/strong><\/strong><\/h3>\n<div class=\"rank-math-answer \">\n\n<p>Yes, GST is applicable on interest charged for delayed payments, as it is considered part of the transaction value under GST law. The interest amount is subject to the same GST rate as the supply of goods or services.<\/p>\n\n<\/div>\n<\/div>\n<div id=\"faq-question-1738737513400\" class=\"rank-math-list-item\">\n<h3 class=\"rank-math-question \"><strong><strong>When is GST on interest payable\u2014on the due date or the payment date?<\/strong><\/strong><\/h3>\n<div class=\"rank-math-answer \">\n\n<p>GST on interest is payable on the date when the interest amount is actually received by the supplier, not on the due date of the invoice. This ensures that GST liability arises only when the interest is realized.<\/p>\n\n<\/div>\n<\/div>\n<div id=\"faq-question-1738737519656\" class=\"rank-math-list-item\">\n<h3 class=\"rank-math-question \"><strong><strong>What GST rate is applicable on interest for delayed payment?<\/strong><\/strong><\/h3>\n<div class=\"rank-math-answer \">\n\n<p>The GST rate on interest is the same as the GST rate applicable to the supply of goods or services. For example, if the supply is taxed at 18%, then the interest charged on delayed payment will also attract 18% GST.<\/p>\n\n<\/div>\n<\/div>\n<div id=\"faq-question-1738737524809\" class=\"rank-math-list-item\">\n<h3 class=\"rank-math-question \"><strong><strong>Is GST applicable if the supplier decides to waive off the interest?<\/strong><\/strong><\/h3>\n<div class=\"rank-math-answer \">\n\n<p>No, if the supplier voluntarily waives the interest amount, then GST on the waived interest is not applicable. However, if interest is charged and collected, GST must be paid on it.<\/p>\n\n<\/div>\n<\/div>\n<div id=\"faq-question-1738737530368\" class=\"rank-math-list-item\">\n<h3 class=\"rank-math-question \"><strong><strong>What are the consequences of not paying GST on interest for delayed payments?<\/strong><\/strong><\/h3>\n<div class=\"rank-math-answer \">\n\n<p>Non-payment of GST on interest can lead to penalties, interest on unpaid tax, and legal consequences under GST law. Businesses should ensure compliance to avoid additional liabilities.<\/p>\n\n<\/div>\n<\/div>\n<\/div>\n<\/div>","protected":false},"excerpt":{"rendered":"<p>Key Takeaways The introduction of GST (Goods and Services Tax) in 2017 necessitates GST payment for the supply of goods and services. GST regulations further have provisions for late fees, interests, and penalties for late GST payments or GST returns filing. Suppliers can further charge interest for late payment along with GST from customers as [&hellip;]<\/p>\n","protected":false},"author":8,"featured_media":66300,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[12],"tags":[],"class_list":["post-59592","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-gst"],"_links":{"self":[{"href":"https:\/\/piceapp.com\/blogs\/wp-json\/wp\/v2\/posts\/59592","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/piceapp.com\/blogs\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/piceapp.com\/blogs\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/piceapp.com\/blogs\/wp-json\/wp\/v2\/users\/8"}],"replies":[{"embeddable":true,"href":"https:\/\/piceapp.com\/blogs\/wp-json\/wp\/v2\/comments?post=59592"}],"version-history":[{"count":10,"href":"https:\/\/piceapp.com\/blogs\/wp-json\/wp\/v2\/posts\/59592\/revisions"}],"predecessor-version":[{"id":66305,"href":"https:\/\/piceapp.com\/blogs\/wp-json\/wp\/v2\/posts\/59592\/revisions\/66305"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/piceapp.com\/blogs\/wp-json\/wp\/v2\/media\/66300"}],"wp:attachment":[{"href":"https:\/\/piceapp.com\/blogs\/wp-json\/wp\/v2\/media?parent=59592"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/piceapp.com\/blogs\/wp-json\/wp\/v2\/categories?post=59592"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/piceapp.com\/blogs\/wp-json\/wp\/v2\/tags?post=59592"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}