CBIC: No GST on penal charges levied on behalf of banks
New Delhi|The Central Board of Indirect Taxes and Customs (CBIC) has clarified that there is no Goods and Services Tax on penal charges imposed on customers by banks and non-banking financial companies (NBFCs). CBIC also clarified through a circular that providing payments up to Rs 2000 on behalf of payment aggregators on online payment platforms will not attract GST.
The circular said, the punitive charges levied by the Reserve Bank on behalf of the governed entities are of a nature to be imposed due to violation of the terms of the contract, hence GST will not be levied on them. CBIC said, in line with the recommendations of the 55th GST Council, it is clarified that no GST is payable on penal charges levied on behalf of borrowers on behalf of regulated entities for violating the terms and material conditions of loan contracts.
Currently, banks charge punitive fees from their customers and also impose GST on them. But now after CBIC’s clarification, customers will get relief.
Rajat Mohan, senior partner, AMRG & Associates, said this clarification is extremely important as it will end disputes at the grassroots level. Mohan said, assuming that contracts are meant to be fulfilled, not broken, the GST Council had thus removed the ongoing ambiguity regarding taxation of duties.
