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CALCULATION OF INTEREST ON LATE PAYMENT OF SERVICE TAX AS PER PROPOSED PROVISIONS OF BUDGET 2014.

Interest on Service Tax is charged under 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

18% for this period

More than six months and up to one year

24% for this period

More than one year

30% for this period

This is 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

 

The above is as per our view/understanding/interpretation, any differentiate interpretation is most welcome.