Time of supply when interest, late fee or penalty for late payment is received

Time of supply when interest, late fee or penalty for late payment is received 

Section 12(6) prescribes that time of supply in case of addition in value by way of interest/ late fee/penalty for delayed payment of consideration for goods.

The time of supply to the extent it relates to an addition in the value of supply by way of interest, late fee or penalty for delayed payment of any consideration shall  be the date on which the supplier receives such addition in value.

This is small mercy. Otherwise, they would have asked taxable person to pay GST as soon as demand of interest, late fee or penalty is issued to recipient.

Example

Stark Traders sold goods to Sharma Sales on 6th June with a condition that interest @ 2% per month will be charged if Sharma Sales failed to make payment within 15 days of the delivery of the goods. Goods were delivered as also the invoice was issued on 6th June.

Sharma Sales paid the consideration for the goods on 6th July along with applicable interest. Time of supply for the goods sold is the date of issue of invoice i.e., 6th June and the time of supply for addition in value by way of interest is the date when such addition in value is received by Stark Traders i.e., 6th July.