Changing Interest rate under Service Tax

Changing Interest rate under Service Tax

Service provider providing taxable services are liable to pay service tax on monthly/ quarterly basis (as the case may be) on provision of service. Interest would be applicable on delay in payment of tax.

The rate of interest during the previous years is as follows-

Period Prior to 16 July 2001 – 1.50% per month or part thereof

16 July 2001 to 15 August 2002 – 24% p.a.

16 August 2002 to 9 September 2004 – 15% p.a.

10 September 2004 to 31 March 2011 -13% p.a.

1 April 2011 to 30 September 2014 – 18% p.a.

From 1 October 2014 till date-

S.No.	Period of delay	Rate of Simple Interest Per Annum
1	Up to six months	18 percent
2	More than six months and up to one year	18 percent for the first six months of delay; 24 percent for delay beyond six months
3	More than one year	18 percent for the first six months of delay; 24 percent for period beyond six months up to one year; 30 percent for any delay beyond one year

The increased rate of tax of 24% and 30% was basically to de- motivate the tax defaulters; however the same also had an effect on the genuine tax payers who were not able to pay tax on account of reasons such as lack of funds to pay tax, dispute on levy of tax etc. Interest paid would be a cost to the tax payer thereby increasing the overall cost of provision of output service

Further many of times tax liability was identified at the time of finalisation of books of accounts (which is generally six months after the end of financial year) attracting interest at 24% or 30% as the case may be on delay in payment of tax, thereby being very harsh on the tax payer.

The Union budget 2016 has brought a relief to tax payers and has proposed to rescind the variable interest rate and reinstate the same with a fixed interest rate of 24% p.a. (in case where service tax is collected but not paid to the Central Government) and 15% p.a. (in other cases). The proposed amendment would be effective from enactment of Finance Bill 2016. 

The proposed amendment would be a welcome change for the genuine tax payers.

(The above views expressed are views of the author and are personal in nature)

Article by 

CA Shilpa Gupta (Shining Star Member)