TaxTMI 
TaxTMI 
TaxTMI 
Interest on Service Tax is charged in accordance with the provisions of Section 75 of Finance Act 1994. Rate of Interest up to 01/10/2014 is simple interest of 18% per annum on delayed payment of tax (3% concession is available to small service providers). But with the Budget 2014 there is a major change in the rate of interest as shown in the table below. This change in interest rate is hammer on the assessee (although 3% concession is available to the small service provider).
S No | Period of delay | Rate of Simple Interest |
Up to six months | ||
More than six months and up to one year | 24% for this period | |
More than one year | 30% for this period |
As per illustration given in TRU the modified interest rates are applicable for the period of delay prior to 01/10/2014 also. But according to canons of law the interest rate(s) existing during the period of delay is the applicable rate of interest. This can be illustrated as under :-
Situation 1:
Service Tax outstanding (Rs. 1,00,000) : | 01/10/2014 |
Service Tax paid on : | 31/03/2016 |
Total delay is 18 months. |
|
Interest calculation shall be as follows:
For period 01/10/2014 to 31/03/2015, Interest rate for 1st six months is 18% p.a. | ₹ 9,000 |
For period 01/04/2014 to 30/09/2015, Interest rate for next six months is 24% p.a. | ₹ 12,000 |
For period 01/10/2015 to 31/03/2016, Interest rate for balance period is 30% p.a. | ₹ 15,000 |
Total amount of Interest | ₹ 36,000 |
Situation 2:
Service Tax outstanding (Rs. 1,00,000) : | 01/04/2013 |
Service Tax paid on : | 30/11/2014 |
The total period of delay is 20 months. As there is change in interest rate with effect from 01.10.2014, therefore, the interest is to be charged in the following manner :-
For period from 01/04/2013 to 30/09/2014 interest rate applicable is 18% p.a. On 01/10/2014 the period of delay elapsed was 18 months, therefore according to new provisions as effected from 01/10/2014 the interest rate for the balance period of two months should be charged at 30% p.a.
Thus, Interest amount is :-
For period 01/04/2013 to 30/09/2014: 18 months @ 18% p.a. : | 27,000 Rs. |
For period 01/10/2014 to 30/11/2014: 02 months @ 30% p.a. : | 5,000 Rs. |
Total Interest | 32,000 Rs. |
Situation 3:
Service Tax outstanding (Rs. 1,00,000) : | 01/07/2014 |
Service Tax paid on : | 31/01/2015 |
Total delay is 7 months. |
|
Interest calculation shall be as follows:
Interest shall be calculated in 3 parts:
From 01/07/2014 to 30/09/2014: 3 months @ 18% p.a. | ₹ 4,500
|
From 01/10/2014 to 31/12/2014 : 3 months @ 18% (Since period of delay already completed three months, therefore on 01/10/2014 there left only three months in first slab of 6 months) | ₹ 4,500 |
From 01/01/2015 to 31/01/2015: 1 month @ 24% p.a. | ₹ 2,000 |
Total Interest | ₹ 11,000
|
Thus in my view the interest should be charged as illustrated above. Contrary views are welcomed.
CA Akash Phophalia
9799569294
Office No 3 Second Floor, Amrit Kalash, Residency Road
Near Bombay Motor Circle, Jodhpur-342001, Rajasthan