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Intersest on service bond amount
10-Aug-2023 (In Tax Law)
Sir/Madam, Is interest is chargable on bond amount of service bond agreement of a psu? The bond agreement which we signed at the time of joining says "Trainee and Surety have further agreed that they jointly or severally shall pay forthwith to the psu on demand an amount of Rs 2 lakhs only as bond amount along with the interest @18% p.a., which the psu may suffer by reason of the breach of conditions of the agreement and upon the trainee and/or the surety making such payment, the above written bind shall be void and of no effect, otherwise it will remain in full force and virtue." Also by a further notification which the bond does not mentions, psu said that a GST of 18% would be applied on bond amount. Is GST applicable on the bond amount?
Firstly if whatever you have quoted has been quoted from the bond without any modifications, then it appears that the 18% interest charged is prima facie vague in as much as it is nowhere mentions as to what is the duration of the interest, i.e. 18% p.a. for how many days, months or years or parts thereof. The bond period though is not mentioned in your quote. Secondly, the wordings of the quote suggest that the amount and interest has to be paid to the PSU on demand only when there is a breach of conditions of the agreement and on such payment the bond gets discharged and void and shall have no effect on any breach of conditions of the agreement. But your quote surprisingly doesn't mention as to whether or not the bond amount shall be refunded if no conditions are breached during the bond period because bond is nothing but security and if the same is in terms of money, the money shall be refunded on expiry of the bond period if no conditions are breached during the bond period. In so far as GST is concerned I wonder whether GST is applicable on bonds of this nature as the bond money is nothing but security deposit. And of course though interest may be chargeable at the time of forfeiture of the bond amount for the period of breach of the agreement, it is nowhere mentioned in your quote as to for what duration interest shall be charged :)
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Adv. Bidhayak Acharyya
Guwahati | 100+ Answers
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