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Normally
If Deferred payment(late payment) interest charged,It is not included in Valuation of Taxable Service
Hence,Service tax not charged on late payment interest

Now from 13.4.2016
Exception is provided to service provided by Government to a business entity
In this case, if late payment interest is charged, interest on deferred payment will be charged on valuation of taxable service.
Note:- In this case,Reverse charge is applicable,hence service receiver has to pay Service tax on total amount included interest

(Notification No. 23/2016 ST dated 13.4.2016)

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CA Maninder Singh

CA Maninder Singh is a Chartered Accountant for the past 12 years. He also provides Accounts Tax GST Training in Delhi, Kerala and online.