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CA Intermediate · Taxation · Payment of Tax

Meera Textiles has an output tax liability of Rs 2,00,000 for April. It paid the tax on the due date, but Rs 50,000 of it was paid by wrongly using input tax credit that was later found ineligible; the credit was availed and utilised in April. The mistake was corrected by paying in cash 40 days after the due date. What is the interest at the prescribed rate (use 24% p.a., 365 days, round to nearest rupee)?

Interest is Rs 1,315. Because ineligible credit was availed and utilised, the higher 24% rate applies on the Rs 50,000 for 40 days: 50,000 x 24% x 40/365. The 18% rate would wrongly give Rs 986.

  1. ARs 1,315Correct
  2. BRs 986
  3. CRs 2,959
  4. DRs 1,973

Explanation

Interest on ineligible ITC availed and utilised is 24% p.a. Interest = 50,000 x 24% x 40/365 = 1,315.07, i.e. Rs 1,315. Rs 986 comes from 18% rate. Rs 2,959 would use 90 days. Rs 1,973 results from 60 days.

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