Mumbai-based Authority of Advanced Ruling (AAR) for the goods and services tax (GST) has held that payment made on account of ‘liquidated damages’ will attract an 18% GST as it is an independent levy which can’t be treated as reduction of the contract price. Tax experts said the ruling would hurt contractors, especially those engaged in supplying exempted services and may lead to litigation. ‘Liquidated damages’ is usually a part of contracts and is considered as a penalty on a contractor who is responsible for delays in handing over the project to the client.

Source - https://www.financialexpress.com