# GST on Interest on Delayed Payment by Customer

Many suppliers have defined credit terms, which require their customers to make payment for supplies by a certain date. If the payment is not made, the supplier charges interest on the amount due from the customer. One of the major questions both suppliers and customers have – is GST charged on interest payment?

Let us understand the common queries which tax payers have with regard to treatment of interest charged by suppliers under GST.

### Is GST on interest on delayed payment applicable?

Interest charged by a registered person from a customer on delayed payment for a supply will be included in the transaction value of the supply. Hence, GST on interest on delayed payment will be applicable.

### What rate of GST will be applicable on interest?

The GST rate applicable to the supply for which the customer has delayed payment, will be the GST rate applicable on interest.

Let us understand this with an example.

Mr. Ram in Karnataka supplies a generator for value of Rs. 5,00,000 to Mr. Mohan in Tamil Nadu on 1^{st }November, ‘17. The terms of payment are that Mr. Mohan should make payment for the supply by 15^{th} November, ’17 and if Mr. Mohan defaults in payment, interest @ 12% per annum will be applicable for every day of default in payment. Mr. Mohan makes the payment on 15^{th} December, ’17.

Here, Mr. Mohan defaults in payment by 30 days. Hence, Mr. Ram charges interest @ 12% for 30 days on Rs. 5,00,000/-, which will amount to Rs. 5000. The rate of GST applicable to generators is 18%. Since this is an interstate supply, IGST @ 18% will be applicable on interest amount of Rs. 5,000. Hence, IGST of Rs. 900 will be applicable.

### Is GST liable to be paid on interest on the day it is due or the day it is paid?

The liability to pay GST on interest arises on the day the customer pays the interest, not on the day the interest becomes due. For example, in the above case, the liability to pay GST on interest arises when Mr. Ram makes the interest payment on 15^{th} December, ‘17, not when it becomes due on 16^{th} November, ’17.

### Is GST applicable on interest even if the supplier waives it off?

If a supplier decides to waive off the interest which is due from a customer on delayed payment, GST will not be applicable on the interest.

In the above example, when Mr. Mohan makes the payment of Rs. 5,00,000 for the supply, interest of Rs. 5,000 + IGST of Rs. 900 is applicable for delayed payment. However, Mr. Mohan decides to waive off the interest. In this case, as no interest is paid, no GST on interest will be applicable.

Hence, GST on interest received from debtors of a business will be applicable. In other words, interest charged and collected by a supplier on a supply has to be included in the transaction value and GST is liable to be paid on the same.

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1. Can you please tell me if we can issue a debit note?

2. Also can you please tell me the sac code that would be applicable?

now..as gst rate is changed from 18 % to 12 % on yarn, now i have to pay interest on old bill of august 2017, so at which rate GST as to be charged on such interest amount. ?

What if the company deals with multiple products having multiple GST rates, including 0%. An invoice contains multiple GST rates, and sometime only partial payment is outstanding which is subject to interest. Doing allocation will become too cumbersome.

Additionally, will a debit note be required to collect the interest & pay GST and what could be HSN/SAC code ?

We have multiple GST rates applicable. One invoice contains more than one GST rate and moreover, sometimes partial payment is received. How the GST will be calculated, as doing pro rata ad allocation will be too cumbersome.

What will be the service code for interest

GST @ 18% Calculate before TDS Amount eg. Rs.100/-

किसी गृाहक को उधार माल बेचा पेमेन्ट लेट आने पर ब्याज लिया क्या मेरी firm को gst pay करना होगा

I could not come to know whether the interest is going to be waive off or not while charging the interest and later after 1month I come to know the interest is to be waived off then what will be the treatment of gst.

Dear Team,

We have raised interest debit note in the month of Feb & March, 2017 (i.e. pre GST). Amount related to that period of interest debit note is receiving in the month of Aug, Sept, Oct , 2017 (i.e. post GST). Will the liability of GST arise on receiving payment against interest debit note?

Dear GST team

Please clarify me weather RCM applicable or not for interstate urd purchase under GTA…

Kindly do the needful

Thanking you

What if there are multiple items in the invoice with one of the item @18% and the other @12% but the interest charged is at the invoice level. What GST rate will be applicable?

Where should we fill these GST details in GSTR1/2 ? Should we raise Debit Note?

Interest is a financial charge so it should be outside the purview of GST in my view…

OK, But how set such credit note in Tally erp, also HSN changes as the base product on which such interest is paid is different .

We suggest you to contact our support team at support@tallysolutions.com

On which HSN Code they have to collect Interest on delayed payements

under which provision of GST act, such interest is liable to GST??

Please kindly suggest.

It is under section 15 of the CGST Act.

First of all thank you for this article.. really helpful.. secondly Before GST I used to deduct TDS @ 10% on the interest amount. So from now onwards will i have to deduct TDS or add GST or Both..?? If Both then GST on which amount before or after the TDS is deducted..

TDS is only to be deducted on the net amount i.e pre gst

TDS to be deducted on Interest Amt.. ok.. but my question is GST to be calculated on which amount.. For eg. Int. Amt. = 100/- Less TDS @ 10% = 100-10 = 90/-

So now GST @18% on which amount 100/- (before TDS) or 90/- (after TDS dedected)

thank you

TDS to be deducted on Interest amount only before GST

TDS to be deducted on Interest Amt.. ok.. but my question is GST to be calculated on which amount.. For eg. Int. Amt. = 100/- Less TDS @ 10% = 100-10 = 90/-

So now GST @18% on which amount 100/- (before TDS) or 90/- (after TDS dedected)

thank you