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Variable Interest Rates - Service Tax

CA Prakash Sajnani 
on 28 January 2015

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Variable Rates of Interest for Delayed Payment of Service Tax Prescribed By Notification No. 12/2014-ST Dated 11-7-2014:-

To encourage prompt payment of Service tax, new interest rates on delayed payments under Section 75 of the Finance Act, 1994, which would vary as per the extent of delay has been prescribed as under:

Provision prior to Fiscal Budget 2014:

Extent of delay

Simple interest rate per annum

01.07.1994 to 15.07.2001

18%

16.07.2001 to 15.08.2002

24%

16.08.2002 to 09.09.2004

15%

10.09.2004 to 31.03.2011

13%

01.04.2011 to 30.09.2014

18%

Provision post Fiscal Budget 2014:

Extent of delay

Simple interest rate per annum

Up to six months

18%

More than six months and up to one year

18%for first six months and 24%for the period of delay beyond six months.

More than one year

18% for first six months, 24% for second six months and 30% for the period of delay beyond one year

This new interest rate regime will become operational from October 1, 2014 up to which the rate of interest of 18%, as presently applicable, will continue to apply.

Still a question may arise in the mind of assessee as to how the changed rate of interest would be applicable for delayed payment of service tax? It can be seen from the above table that Central Government has declared different rate of interest for different period.  Therefore, while calculating interest amount, assessee has to refer rate of interest given in above table for the period starting from due date of payment of service tax till actual date of payment of service tax.

To understand in better way illustration is given below reference can be made to illustration made in para 3.1 of the D.O.F. No. 334/15/2014-TRU New Delhi, dated July 10, 2014. Issued by the Tax Research unit Department of Revenue, Ministry of Finance, Government of India.

E.g. assume a case, where service tax became due, say, on the 6th of July, 2012 and the assessee pays the dues on 6th of December, 2014. In such a case, the interest to be charged would be as below:

(i) 18% simple interest upto September, 30th, 2014.

(ii) For the period from 1st October, 2014 to 6th December, 2014, the rate of interest will be 30% since the period of delay is beyond one year.

As specified in the proviso to section 75, three per cent concession on the applicable rate of interest will continue to be available to the small service providers, whose value of taxable services provided in a financial year does not exceed Sixty lakh rupees during any of the financial years covered by the notice or during the last preceding financial year, as the case may be.

Any queries in the matter can be reached to Prakash Sajnani.


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