Charges for cheque bounce to attract GST

The AAR ruled that the recovery of charges in lieu of cases where a party fails to honour its commitment of timely payment is act of toleration of such an act.

Written by FE Bureau

New Delhi

December 27, 2018 04:23 IST

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Charges ensure that the applicant continues its agreement with its customers despite default.

Charges for cheque bounce collected by an entity from its customers are liable to be taxed with the applicable Goods and Services Tax (GST) rate, the Authority for Advanced Ruling (AAR) in Maharashtra ruled. The applicant, a non-banking financial company, argued that cheque-bounce charges were a form of penalty or liquidated damages and therefore not a consideration for supply. Hence, such charges collected weren’t taxable under the GST.

The AAR ruled that the recovery of charges in lieu of cases where a party fails to honour its commitment of timely payment is act of toleration of such an act. Charges ensure that the applicant continues its agreement with its customers despite default. This, therefore, is construed as supply under the GST Act and hence taxable.

This article was first uploaded on December twenty-seven, twenty eighteen, at twenty-three minutes past four in the morning.