CBIC announces no GST on penal charges levied by banks and NBFCs, following the 55th GST Council recommendation. Exemption also applies to payment aggregators for transactions up to Rs 2,000.
In a significant update for the financial sector, the Central Board of Indirect Taxes and Customs (CBIC) has clarified that no Goods and Services Tax (GST) will be levied on penal charges imposed by banks and Non-Banking Financial Companies (NBFCs). This decision follows the recommendation of the 55th GST Council.
The CBIC clarified that these penal charges are viewed as a result of the breach of contract terms, specifically the non-compliance with material conditions of a loan agreement by the borrower. This makes them exempt from GST, as they are not seen as a regular fee or service charge.
Additionally, the exemption extends to Payment Aggregators for transactions that do not exceed Rs 2,000. However, this exemption does not apply to Payment Gateway services, which continue to be subject to GST.
This move is expected to provide clarity for the financial sector and further streamline the tax framework for banks, NBFCs, and other regulated entities operating in India.
