- The tax department often treats liquidated damages as a taxable “service” under GST, arguing that accepting penalties for delays is akin to “tolerating an act.”
- Legal and judicial consensus clarifies that liquidated damages are compensatory, not consideration for a service or supply.
- Payments for breach of contract, such as liquidated damages, are not taxable under GST as per CBIC Circular No. 178/10/2022-GST.
- Adjudicating authorities sometimes disregard binding circulars and legal principles, causing ongoing disputes.
Source: mastersindia.co
Note that this post was (partially) written with the help of AI. It is always useful to review the original source material, and where needed to obtain (local) advice from a specialist.
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