02 February 2016
From the query it is not clear whether you are asking about allowability under Finance Act 1994 (as amended) or the provisions of Income Tax Act 1961. I am presuming you are asking for the latter clarification. Service Tax being an indirect tax like VAT / CST is recovered from the customer and remitted to the Treasury. Therefore there is no question of allowability of the expense. However, if no money has been recovered from customers and a demand is made and PAID, the demand can be charged to P& L Account as allowable expenses. The same is the case with interest, since the interest is in the nature of cost for delayed deposit of tax - it is not penal interest. However one has to keep in mind that the interest only to the extent of 18% p.a. is allowable - since after 6 months the rate is 24% p.a. and after 12 months it is 30% p.a.. Penalty paid is not an allowable expense.
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