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CA Intermediate · Taxation · Payment of Tax

Rohan & Co., Indore, paid its monthly output tax late. Its net tax liability for the month was Rs 5,00,000, of which Rs 3,00,000 was discharged through the electronic credit ledger by the due date, and Rs 2,00,000 in cash 30 days late. Which of the following statements on interest is correct?

Interest at 18 percent is charged only on the Rs 2,00,000 cash portion, because the credit was available and utilised by the due date. For 30 days it is about Rs 2,959. The 24 percent rate applies to wrongly availed and utilised credit.

  1. AInterest at 18% applies on Rs 5,00,000 for 30 days
  2. BInterest at 18% applies on Rs 2,00,000 for 30 days, which is Rs 2,959 approximatelyCorrect
  3. CNo interest applies as credit was used on time
  4. DInterest at 24% applies on Rs 2,00,000 for 30 days

Explanation

Where tax is paid late, interest applies only on the portion payable in cash, that is, the net liability after credit available in the electronic credit ledger on the due date. Here Rs 2,00,000 x 18% x 30/365 = Rs 2,958.9, about Rs 2,959. Charging on Rs 5,00,000 ignores the credit; 24% applies to excess ITC or excess reduction in output tax, not to this case.

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