GST will no longer be levied on penalty charges levied by banks and NBFCs, no tax will have to be paid on online transactions of Rs 2000

GST will no longer be levied on penalties levied by banks and non-banking financial companies. CBIC has clarified this by issuing a circular. The Central Board of Indirect Taxes and Customs also clarified through a circular that GST will no longer be levied on transactions up to Rs 2000 with the help of payment aggregators on online platforms.

Clarifying the issue of GST applicability on penalty charges levied by banks and NBFCs, CBIC said that penalty charges of entities regulated by RBI are levied for violating the terms of the contract, and hence GST will not be applicable on them.

CBIC said, as per the recommendation of the 55th GST Council, it is clarified that no GST is payable on penalty charges levied by regulated entities for non-compliance of the material terms of the loan contract of the borrower. AMRG & Associates Senior Partner Rajat Mohan said that this clarification is important as it will resolve disputes related to interpretation.

Regarding the imposition of GST on payment aggregators, CBIC said that it had received applications seeking clarity on GST exemption to payment aggregators in respect of transactions up to Rs 2,000 made through credit cards, debit cards, charge cards or other payment card services. Payment aggregators are entities that facilitate e-commerce websites and merchants to receive payments from their customers.

CBIC said in its circular that GST exemption is in respect of settlement of amount up to Rs 2,000 for transactions up to Rs 2,000 made through credit cards, debit cards, charge cards or other payment card services to RBI regulated payment aggregators, as payment aggregators fall under the definition of 'acquiring bank'.