Clarify GST implications on interest charged for overdue invoices. Learn about valuation rules, tax rates, and specific exemptions.
When you charge interest, a late fee or a penalty for delayed payment, GST law treats it as part of the value of the underlying supply. So the interest attracts GST at the same rate as the goods or services supplied, and becomes taxable when the amount is received.
the HSN code for interest charged on delayed payments cannot differ from the classification of the original goods or services for which the payment was delayed. The same HSN code and GST rate apply.””
Frequently Asked Questions
Is GST charged on interest for late payment?
Yes, interest or penalty for delayed payment is included in the value of supply and taxed at the supply’s rate.
At what rate is delayed-payment interest taxed?
At the same GST rate that applies to the original goods or services.
When does GST on this interest become due?
Generally when the interest or late fee is actually received.
How should I document it?
Show the interest on a debit note or invoice with GST applied.
