Time of Supply explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
A customer pays sixty days late and the contract provides for interest. Section 15(2)(d) brings that interest into the value of the supply. But when is it taxable — when it accrues, or when it is received?
The Act answers it in a sub-section that is easy to miss, and the answer is taxpayer-friendly.
s.15(2)(d) includes in the value of supply "interest or late fee or penalty for delayed payment of any consideration for any supply". s.13(6) — mirrored by s.12(6) for goods — provides that 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. So it is taxed on receipt, not on accrual, and at the rate of the original supply.
The two provisions working together
Section 15(2)(d) decides whether it is taxable and at what rate. Because the interest is an addition to the value of the underlying supply, it takes:
- the rate of that supply, not 18% as a financial service;
- the place of supply of that supply;
- the same HSN or SAC classification.
That matters. Interest on a delayed payment for goods taxed at 5% is itself taxed at 5%. Interest on a delayed payment for an exempt supply is exempt.
Section 13(6) decides when:
"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."
Why receipt rather than accrual
Delayed-payment charges are frequently debited but never collected. A supplier that has already waited sixty days for the principal often waives the interest to preserve the relationship, or negotiates it away in a settlement.
Taxing an accrual would require the supplier to pay tax on money it may never see, then chase a credit note when the charge is waived. Section 13(6) avoids that entirely: no receipt, no tax.
The consequence is a genuine and lawful deferral. Interest debited in the books in March but received in September is taxable in September.
Documentation
Because the addition arises after the original invoice, it needs its own document.
A debit note under s.34(3) is the appropriate instrument where the taxable value or tax charged in the original invoice is found to be less than the value or tax payable. The debit note must contain the particulars in Rule 53(1A) and must reference the original invoice.
Two practical points:
There is no s.34(2)-style time limit on debit notes. The 30 November outer limit applies to credit notes under s.34(2). A debit note may be issued later — though s.16(4) was amended by the Finance Act, 2020 so that the recipient's credit on a debit note is keyed to the financial year of the debit note, not of the original invoice, which is favourable to the recipient.
Report it in the month of receipt. Since the time of supply is the receipt date, the debit note should be declared in the return for the period in which the addition is received, even if the note itself was raised earlier.
What section 15(2)(d) does not cover
Liquidated damages for breach. Not interest for delayed payment of consideration. Circular No. 178/10/2022-GST treats damages as compensation, not consideration. Liquidated damages and tolerating an act →
Interest on a loan or deposit. That is consideration for extending credit — a separate supply, exempt under the services exemption notification. Section 15(2)(d) is about interest for delayed payment of consideration for a supply, which is different.
Cheque dishonour charges. Not interest for delayed payment; the circular treats them as outside the levy.
Interest under s.50 payable to the Government. Not a supply at all.
The dividing line is whether the amount is a charge for late payment of the price of a supply. If yes, s.15(2)(d) and s.13(6) apply. If it is compensation for a breach, or consideration for a separate financing supply, they do not.
Key takeaways
- s.15(2)(d) includes delayed-payment interest, late fee and penalty in the value of the original supply.
- The addition takes the original supply's rate, place of supply and classification.
- s.13(6) and s.12(6): the time of supply is the date the supplier receives the addition.
- No receipt, no tax — accrual alone does not create liability.
- Document it with a debit note under s.34(3), referencing the original invoice.
- Liquidated damages, loan interest and cheque bounce charges are outside s.15(2)(d).
Read next
- Inclusions in Value of Supply
- Liquidated Damages and "Agreeing to Tolerate an Act"
- Debit Note Format Under GST
- Value of Supply: Determining the Taxable Value
Disclaimer: Positions stated as on 5 September 2026, based on ICAI Background Material on GST, Volume I (2026 edition).