GST Exemption on Penal Charges and Small Transactions

GST will not be applied on penal charges levied by banks and NBFCs, as clarified by the CBIC. The exemption extends to transactions up to Rs 2,000 facilitated by payment aggregators. This clarification resolves interpretative disputes and promotes a predictable tax environment.

The Central Board of Indirect Taxes and Customs (CBIC) has declared that Goods and Services Tax (GST) will not be applicable on penal charges imposed by banks and non-banking finance companies (NBFCs). This decision follows recommendations by the 55th GST Council, addressing the nature of these charges as contractual breaches.

In addition, CBIC provided clarity regarding GST exemptions on transactions up to Rs 2,000 facilitated by Payment Aggregators (PAs). Notably, this exemption pertains specifically to the settlement function and does not extend to Payment Gateways, as distinguished by RBI guidelines.

Experts like Rajat Mohan and Saurabh Agarwal see these clarifications as critical for eliminating ambiguities, ensuring adherence to RBI directives, and enhancing the business tax environment. The move aligns with the government's broader intent to foster tax predictability.

(With inputs from agencies.)