Interest rates hiked or dropped !!

Interest rates hiked or dropped !!

Tax norms are made applicable in order to generate revenue for the Government. For streamlining the system of payment and penalizing the culprits the tax norms come with the interest provisions. Such interest rates are imposed on the defaulters as an extra amount levied to compensate for loss of delayed payment from assessees’ to the […]

 

Interest rates hiked or dropped !!Tax norms are made applicable in order to generate revenue for the Government. For streamlining the system of payment and penalizing the culprits the tax norms come with the interest provisions. Such interest rates are imposed on the defaulters as an extra amount levied to compensate for loss of delayed payment from assessees’ to the Government treasury.

Finance Bill 2016 amended Section 75 of the Finance Act, 1994 which governs the provisions relating to interest on delayed payment of Service Tax by adding a proviso. The proviso to Section 75 of the Finance Act held that “Provided that in the case of a person who collects any amount as service tax but fails to pay the amount so collected to the credit of the Central Government, on or before the date on which such payment is due, the Central Government may, by notification in the Official Gazette, specify such other rate of interest, as it may deem necessary.” This has widened the scope of interest levy by including those who have collected Service Tax but has not paid to the Government, in addition to those who are liable to pay tax.

Interest rates have been amended and simplified under two categories vide Notification No. 13/2016-ST dated 01.03.2016 – First, collection of any amount as service tax but failing to pay the amount so collected to the credit of the Central Government on or before the date on which such payment becomes due will be charged at simple interest of 24%; and second as other than in situations covered under serial number first above will be charged at simple interest of 15%.

Interest rates on delayed payment of tax is proposed to be made uniform at 15%, except in case of Service Tax collected but not deposited with the Central Government, in which case the rate of interest will be 24% from the date on which the service tax payment became due. In case of assessees, whose value of taxable services in the preceding year/years covered by the notice is less than Rs. 60 Lakh, the rate of interest on delayed payment of service tax will be 12%.

There is a little twist in the first category of interest provisions which mentions two things “Collection of any amount” and “on or before the date on which such payment becomes due @ 24%.” The interpretation which may arise from this is that interest will be charged in two slab rates. All the payments which have become due but not collected will be taxed for interest calculation at 15%; and payments received from the service receiver but has been not paid to the Government after due date will be taxed for interest at 24%.

Contributed by Miss Ruhi Jhota:

Ruhi is an Advocate and practicing in Indirect Taxes. She possesses strong research background which is required to present the complexity of taxation in terms that a layman can understand.

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