GST Bill Proposes To Cut Cap On Tax Penalties

The Central Goods and Services Tax (GST) Bill, one the four legislation introduced in the Lok Sabha on Monday, has a provision which looks to cap the interest on delayed or non-payment of taxes at 18 percent. The current cap on some of the taxes levied by the Centre like service tax and excise duty is as high as 36 percent.

If a person fails to pay tax within a specified time, an interest not exceeding 18 percent will apply. The rate of interest will be notified by the government on the recommendation of the GST Council, reads the bill.

The law also states that if GST is collected by a merchant from customers, but has not been deposited with the government, a penalty equivalent to the amount of tax not paid will be levied, plus interest. The interest in this case is also currently capped at 36 percent. The government will also levy an interest on the tax for the period it was not paid.

L Badri Narayan, Partner at Lakshmikumaran & Sridharan, told BloombergQuint that a higher penalty for such cases will ensure that GST collected is not utilised for working capital and financial benefits of companies. This would lead to more stable tax collection and administration, he said.

Currently interest rate on excise duty, service tax, customs (countervailing duty and special additional duty) is 15 percent and if an assessee has collected service tax or excise but not deposited it with the government, then interest rate of 24 percent is levied the cap though is 36 percent, Sumit Lunker, indirect tax partner at PricewaterhouseCoopers told BloombergQuint.

The Bill also proposes to cap the interest levied on the claim of wrong input tax credit at 24 percent. Input tax credit is the benefit received for the tax which has already been paid on the input used for a particular product.

“The current ceiling on input tax credit for service tax and excise stands at 36 percent,” Amit Sarkar, an independent tax expert told BloombergQuint.

The bill also proposes to give powers to tax officials to attach property or seize bank accounts to secure the tax due to government, a clause which is already present in current tax laws.

Also Read: GST: The ABC Of The Registration Process