Question ID : 28414

GST on interest charged by banks

Banks are charging GST on EMI-interest (credit card transaction, converted to deferred payment). As per my understanding, they can only do so on penal interest (due to late payment), and not on regular interest. Notification 122017 does mention credit card services as non-exempt. However, interest on credit card dues arise due to late payment. In case of a normal EMI, which is created by converting credit card transaction to deferred payment, the resultant interest is not penal, but like interest on loan. I am also providing below opinion in public forum, on this very subject, the internet link is swww.taxmanagementindiawebView_discussions_detail.asp?ID113009kwGST-on-Interest-component-of-Loan-EMI Extracts from the above link "I dont accept the view that Banks action is covered by Section 15(2)(d) - Value of Supply shall include interest or late fee or penalty for delayed payment of consideration for any supply. Point to be noted here is - interest mentioned under section 15(2)(d) is in the nature of penal charge for delay in making payment of consideration. Interest on loan is not chargeable to GST in a normal way as already explained in my reply above.. It was also not chargeable to Service Tax earlier i.e. pre-GST-era. GST is levaiable on the amount of interest only if interest is paid on account of default in payment. Your attention is also drawn to Sh.Maraippan Govindarajans reply wherein he has clearly linked interest to penalty i.e. interest by virtue of default payment. When default occurs time of supply is complete only after payment of interest and in that situation interest forms the part of taxable value. Otherwise not at all"

posted by A. Banerji on Jan 17 2018 12:00AM