GST Implications On Liquidated Damages

Introduction

Liquidated damages are damages which an injured party is entitled to receive on account of breach by the other contracting party. They refer to a pre-determined amount of compensation as stipulated in the contract which the parties before entering into a contract agree upon, will be payable in case there is a breach of the terms of the agreement by any of the contracting parties as provided in Sections 73 and 74 of the Indian Contract Act, 1872. It is common for the parties entering into a contract to specify in the contract itself, as to what compensation would be payable in the event of a breach of the contract. Black's Law Dictionary defines 'Liquidated Damages' as cash compensation agreed to by a signed, written contract for breach of contract, payable to the aggrieved party.