ENA Sectors 2025-01-29 17:07:58 <p><span style="font-size:14px"><strong>New Delhi, Jan 29 (KNN)</strong> In a significant move for both borrowers and financial institutions, the Ministry of Finance clarified on Tuesday that penal charges imposed by banks and non-banking financial companies (NBFCs) for non-compliance with loan terms will not attract an 18 per cent Goods and Services Tax (GST).</span></p> <p><span style="font-size:14px">This announcement comes after the 55th GST Council meeting, where the matter was discussed in response to concerns raised by various stakeholders.</span></p> <p><span style="font-size:14px">These stakeholders had sought clarification on whether GST would apply to such charges, following the Reserve Bank of India's (RBI) directive issued on August 18, 2023.</span></p> <p><span style="font-size:14px">The RBI had instructed regulated entities to cease using the term penal interest in relation to borrowers who fail to meet loan terms. Instead, the central bank urged institutions to replace penal interest with the more neutral term penal charges. This change was introduced to enhance transparency and ensure clearer communication between borrowers and lenders.</span></p> <p><span style="font-size:14px">The Ministry of Finance's clarification now ensures that these charges, which are typically levied for late payments or other non-compliance with loan agreements, will not be subjected to the 18 per cent GST rate.</span></p> <p><span style="font-size:14px">This comes as a relief to borrowers who were concerned that such charges could be further burdened by additional taxes, raising the cost of non-compliance.</span></p> <p><span style="font-size:14px">The clarification addresses ongoing confusion and provides much-needed clarity, ensuring that both financial institutions and borrowers can move forward with a better understanding of how these charges will be treated under the current tax framework.</span></p> <p><span style="font-size:14px">This decision is expected to ease compliance issues for both parties and ensure that the financial ecosystem remains transparent and balanced.</span></p> <p><strong><em><span style="font-size:14px">(KNN Bureau)</span></em></strong></p> 40839 https://knnindia.co.in/news/newsdetails/sectors/penal-charges-imposed-by-banks-and-nbfcs-will-not-attract-18-gst-finance-ministry 2025-01-29 17:07:58 knnindia.co.in