Rate of interest on outstanding taxes

 While the department insists on payment of demand raised by it even if the taxpayer does not accept the assessment and files an appeal against it, a tax payer is generally reluctant to pay any disputed demand until the matter is decided by appellate authorities.

 There are provisions in the Income-Tax Act to pay interest to a taxpayer on refunds due to him, and to charge interest on unpaid demands.

 But the rate of interest is highly discriminatory in favour of the department. Even after the recent amendments to the Income-Tax Act by the Taxation Laws (Amendment) Ordinance, 2003 (September 8, 2003), the government will pay interest at the rate of 6 per cent per annum, but will charge interest from taxpayers at the rate of 12 per cent. There can hardly be any justification in keeping such a glaring difference in the rates of interest.

 The discriminatory rates of interest are intended to persuade taxpayers to pay even the disputed demands because in case of non-payment, if the demand is eventually sustained, the taxpayer will be required to pay the interest at the rate of 12 per cent from the date of notice of demand till the date of actual payment.

 Amount of interest could be substantial because finalisation of appellate proceedings generally takes a considerable time.

 Such high rates of interest will appear very unreasonable to foreign enterprises because they are used to do business in low interest regimes. Fluctuating rates of foreign exchange further add to this problem.

 Because the government is keen to collect even the disputed taxes, the Income-Tax Act has been so carved that a taxpayer is obligated to pay even a disputed demand unless he gets a