No GST Payable on Penal Charges collected by Banks and NBFCs from Borrower: FM Clarifies

The Finance Minister has clarified that no GST is payable on penal charges collected by banks and non-banking financial companies (NBFCs) from borrowers. These charges, often imposed for late payments or defaults, do not attract GST as they are not considered part of the taxable supply of services. The decision brings much-needed clarity to the banking and financial services sector, which had been uncertain about the GST treatment of such charges. The clarification ensures that financial institutions do not need to collect or remit GST on penalties, simplifying compliance and reducing administrative costs. This is expected to provide relief to both financial institutions and borrowers by reducing the tax burden on penalties.