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CA Intermediate · Taxation · Payment of Tax

Kiran Pvt Ltd, a regular taxpayer, has net cash tax liability of Rs 2,00,000 for the month of April, due on 20 May. It pays Rs 2,00,000 on 30 May, ten days late. Assume interest at 18% per annum on a 365-day year and that the net liability was paid fully in cash. What is the interest payable, to the nearest rupee?

Interest is Rs 986. It equals Rs 2,00,000 multiplied by 18% per annum and by 10 days over 365. That is Rs 36,000 a year, or about Rs 98.63 a day, giving Rs 986.30 for ten days, which rounds to Rs 986.

  1. ARs 986Correct
  2. BRs 1,000
  3. CRs 3,600
  4. DRs 9,863

Explanation

Interest = 2,00,000 x 18% x 10/365 = 36,000 x 10/365 = 3,60,000/365 = Rs 986.30, i.e. Rs 986 to the nearest rupee. Option 3 (Rs 3,600) forgets to divide by 365 days and effectively uses a month. Option 4 uses 100 days wrongly.

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