The Hindu Business Line : Delay of even a day will attract a month's interest

Chennai March 10 How can you collect more interest without changing the rate of interest? Budget 2007 has an innovative answer: Charge interest on a per-month basis, rather than charge 12 per cent per annum. Which means 1 per cent per month. But would that make a difference, you may wonder? "Yes, it does," say Mr K. Subramanian and Ms Vandana Biyani of Deloitte Haskins & Sells, Bangalore. "Prima facie, effective rate of interest seems to be same, but calculations would undergo a change consequent to the proposed amendment."

This is "how", as the duo explains: "The procedure to calculate interest payable is prescribed in Rule 119A of the Income-tax Rules, 1962. The rule prescribes that where the interest is to be calculated on a per-annum basis, any fraction of a month can be ignored. But, when interest is to be calculated on a per-month basis, every part of the month shall be deemed to be a full month." This is bad news, therefore, for persons who fail to deduct tax at source or pay the same within the due time prescribed. "With the changes proposed by the Finance Minister in the Finance Bill, 2007, provisions pertaining to levy of interest on short/no deduction under section 201 of the Income Tax Act, 1961 have undergone change."

The current regime is that persons who have not deducted the whole or part of the tax, or after deduction have failed to pay the same to the credit of the government, are liable to pay simple interest at the rate of 12 per cent per annum. The amendment proposes to change the method for calculation of interest to a per month basis, i.e. 1 per cent per month.

In the present scenario, a delay of less than a month does not attract interest levy, as part of the month is ignored in determining the period of default. Not so after the Bill becomes law. Consider the following situation, that the Deloitte professionals provide, as an example: Tax deducted at source (TDS) under section 194J is Rs 1,000; date of payment/credit, and date of deduction of tax at source (TDS) — May 25; due date for payment of tax — June 7; and actual date of payment of tax — June 25.

For the delay in remittance of TDS of 18 days, interest under section 201 would be `nil' (i.e. Rs 1,000 x 0 months x 12 per cent), in the pre-Finance Bill, 2007 era. As a result of the recent amendment, though, interest works out to Rs 10 (i.e. Rs 1,000 x 1 month x 1 per cent). Watch out: Delay of even a day will attract a month's interest!

"Not only interest under section 201(1A) is leviable on a monthly basis but also interest under section 132B (4)(a) and section 245D(6A) are also liable for interest computation on a monthly basis as against the present yearly basis," points out Mr V.K. Subramani, a practising chartered accountant.

An indication that the taxman is turning financially savvier?

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Delay of even a day will attract a month's interest