Whether Every Interest received under GST is exempt?
Now a days everyone under the assumption that interest received under GST is exempt and no tax is payable on this income. If we gone through the definition of supply then it includes sale, transfer, exchange, barter, license, rental, lease and disposal. If a person undertakes either of these transactions during the course or furtherance of business for consideration, it will be covered under the meaning of Supply under GST.
GST is levied on value of supply. What is value of supply is defined under Rule-15 of CGST act. For ease of reference it is as follows
“The value of supply has been provided as the “transaction value” of such supply which is the price actually paid or payable for the supply and includes interest or late fee or penalty for delayed payment of any consideration for any supply.”
From the above part, it means every interest is not exempt.
Treatment of Interest received on Loans & Advances:
According to following notification Interest is Exempt
Entry 27(a) of the Notification No. 12/2017 and Entry 28(a) of the Notification No. 9/2017 which relates to services by way of extending deposits, loans or advances in so far as the consideration is represented by way of interest.
Treatment of Penal Interest:
As per circular no 102/21/2019-GST dated 28th June 2019 the department has clarified that interest charged on delayed payment for supply of goods and services will be included in the value of supply and will stand liable for GST. Whereas penal interest charged on the delayed payment of loan repayment will be exempt under GST.
Treatment of Interest recovered for delayed payment:
From the Valuation rule which is specified above as per Circular no 102/21/2019-GST dated 28th June 2019 issued by Government Penal interest charged on delayed payment for supply of goods and services will be included in the value of supply and will stand liable for GST.
Generally such interest recovery portion is ignored and buyer pays GST on sale value including any incidental charges like packing charges, transportation charges if any.
Time of supply for payment of GST on above part:
The time of supply in case of interest, late fee or penalty received for delayed payment of consideration shall be the date of receipt of such interest
Conclusion: On the basis of above, one should be firstly checked that whether such interest is specifically excluded from the GST or not. If it is not excluded then one is required to pay GST on it. Hence every interest received is not exempt from GST.
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