Effects of GST on delayed Customer payments

• Posted on May 22, 2018
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• By Ayushi Patel

Lot of Chaos is heard from the business owners and the traders regarding the complexity of GST for the late payments from there customers. It is a usual trade practice that seller’s sell the goods to their buyer and give them the credit period for certain time duration, after which he charges the interest for delay in payment. Here, the confusion arises because sellers are not sure about the treatment of tax on interest amount received.

Essential questions that arise are..

• Does Interest received under late payment liable for GST ??
• What is the Rate at which GST is charged on interest received against late payment ??
• How should this be shown in GST return ??

As per Sec 15 2 (d), Interest, late fees or penalty for delay payment will be consider in value of supply and is liable to pay GST.

For Example:

Suppose Mr. A from Maharashtra supplies goods worth ₹2,00,000 to Mr. B in Gujarat on 5th Jan, 2017. The credit period given to Mr B. is for 30 days and in case of delay in payment he has to pay interest of 10%p.a. The GST payable for the goods were 18%.

Mr. B was not able to pay on the due date and paid on 5th March, 2017. So now he has to pay additional interest of (2,00,000*10/100*30/365) ₹1643.  As it is a intra state transaction Mr. A raise a debit note under, sub-section (3) of section 34, to Mr. B of ₹1643 charging IGST on the same @18% i.e. ₹ 295.

GST provisions are clearly outlined that charging of Interest will be a part of value of supply. Liability to pay GST arises when supplier receives payment. The tax rate applicable on the interest amount will be the same as tax rate applicable on the goods.

The supplier’s liability to discharge tax  arises when he actually receives the payment, i.e during the month of March 2018 , however he has already discharged his tax liability for the month of February (when the buyer was suppose to pay) when he has raised the debit note.

• Posted on May 22, 2018
• |
• By Ayushi Patel
• |
• 0 Comments