Taxability of Liquidated Damages under GST
Taxability of Liquidated Damages under GST Liquidated damages refer to the pre-determined amount of compensation that a party agrees to pay in the event of a breach of contract or default by one of the parties. Under GST (Goods and Services Tax), liquidated damages may be subject to tax depending on the circumstances of the case. If liquidated damages are part of the contract price and are paid for the supply of goods or services, they are treated as consideration for the supply and are subject to GST at the same rate as the supply. This means that if the supply is subject to GST, the liquidated damages will also be subject to GST at the same rate. However, if the liquidated damages are paid for reasons other than the supply of goods or services , such as compensation for breach of contract or default, they may not be subject to GST. In such cases, the payment of liquidated damages will be treated as a penalty or fine, and penalties and fines are not subject to GST. It is important