Interest on Service Tax Late Payment 2011

There are many students who have many doubts about calculating interest http://www.svtuition.org/2010/02/interest.htmlon service tax and what is the current interest rate on service tax late payment in 2011. First of all, I want to tell that interest on service tax is the loss of your business which did due to your negligence. So, it will treat as indirect expense and it will show in the debit side of profit and loss account. We will pass the following entry when we will pay interest on service tax with service tax payment. Service tax will not show in the profit and loss account because we are making books on the accrual basis and previous year, we already showed it in profit and loss account.

Interest on service tax Dr. XXXX


Service Tax Account Cr. XXXX

Now, your second problem is of calculating interest on service tax. For this, you need interest rate. According to new updates in interest rate ( As per otification no. No. 6/2011) is 18% on service tax  if value of taxable service is more than Rs. 60 Lakhs and if less than Rs. 60 Lakh, you have to pay 15% interest on service tax  if you do not pay service tax within the 5th day of the month following the month or quarter. The new rate of interest of 18% will be applicable from 1st April, 2011.

Suppose, your taxable service value is Rs. 10000 and   service tax is 1030 Rupees which is payable. You have to pay it after 125 days. You can calculate interest on this service tax with following way:

= 1030 X 15% X 125/ 365 =  Rs.52.91

In following video tutorial you can easily understand the accounting treatment of interest on service tax.

Related : New Amendments in Service Tax 2011