The Interest Tax Act

Computation Of Chargeable Interest

Section 6 of the Interest-Tax Act concerns the way that chargeable interest -- interest that is subject to the tax -- is calculated. For any given tax year, a lending or credit institution's chargeable interest is the amount of interest received in the previous year. Interest from loans and advances to other credit institutions is not counted as chargeable interest. Interest that was due but has become a bad debt is subtracted from the amount of chargeable income provided that the bad debt has is written off as an unrecoverable debt in the lending institution's accounts.

An officer of the tax authority who is responsible for assessing the amount of interest tax that a lending institution must pay, can serve notice on the lending institution, demanding the production of accounts and any other documents that the tax officer wishes to see. This may happen if the lending institution has not presented a tax return to the tax authority, which is a requirement of section 7 of the act. The tax officer must use the accounts and other documents produced by the lending institution to calculate the amount of chargeable interest earned by the lending institution, and the amount of tax that the institution must pay.

If the tax commissioner, or an officer charged with assessing the amount of interest tax that a lending institution must pay, has reason to believe that the lending institution has concealed information, the commissioner or tax officer can charge a penalty against the lending institution. The lending institution also has to pay a penalty for providing inaccurate information to the officer charged with assessing the amount of interest tax it needs to pay, The penalty for concealing chargeable interest or providing inaccurate information is three times the amount of interest tax that should have been charged against the amount that the lending institution concealed.

If a lending institution does not agree with the amount of tax assessed against its chargeable interest, or objects to a penalty imposed by the Commissioner or a tax officer, the lending institution may make an appeal to the Appeals Commissioner. Since Oct. 1, 1998, all appeal applications have to be accompanied by a fee of 250 rupees. Appeals must be heard with 30 days of the notice of an assessment, or of a penalty being served against the lending institution making the appeal. The Appeals Commissioner can rule in favor of the lending institution, but if the Appeals Commissioner rules against the lending institution, he can issue an order that increases the assessment or the penalty.