a. Deficiency Interest and Delinquency Interest

New Rule on Delinquency Interest and Deficiency Interest

Collection of interest is not punitive in nature, but compensatory; it is compensation to the State for the delay in the payment of the tax. (Republic v. Heras, G.R. No. 26742)¹

Updated: Under the TRAIN Law, deficiency and delinquency interest are no longer imposed simultaneously, and deficiency interest runs from the original prescribed payment date up to the payment due date stated in the notice and demand; if the deficiency remains unpaid after that date, delinquency interest runs thereafter (Asian Transmission Corporation v. CIR, G.R. No. 242489, 8 November 2023).

Deficiency Interest

A deficiency interest at the rate of 12% per annum shall be imposed on any unpaid amount of tax from the date prescribed for payment until the amount is paid or, if it remains unpaid, until the payment due date in the notice and demand; delinquency interest applies thereafter. The 12% interestis the double of the legal interest rate for loans or forbearance of any money as set by the BSP (Currently 6% per BSP Circ No. 799 Series of 2013⁴).

Under Section 249(A) of the NIRC, as amended by RA 10963, the applicable interest rate is double the legal interest rate for loans or forbearance of money as set by the BSP.

Updated: Under the TRAIN Law, a single interest rate of 12% per annum is imposed on any unpaid amount of tax from the prescribed payment date until fully paid; deficiency and delinquency interest remain distinct under Section 249(B)–(C) of the NIRC, as amended by RA 10963, but may not be imposed simultaneously on the same unpaid amount (Asian Transmission Corporation v. CIR, G.R. No. 242489, 8 November 2023).

Delinquency Interest

Delinquency interest shall be imposed in case of failure to pay:

• Tax due on any return required to be filed, or
• Tax due for which no return is required, or
• A deficiency tax, or any surcharge or interest thereon on the due date appearing in the notice and demand of the CIR.

Delinquency interest shall be at the rate of 12% per annum on the unpaid amount until the amount is fully paid. Interest shall form part of the tax.

Note: Pursuant to Sec. 249 of the NIRC⁵, the imposition of interest on delinquency is mandatory. (Jamora v. Meer, G.R. No. 48129, 11 November 1942)⁶

Note: The deficiency and the delinquency interest cannot be imposed simultaneously. (NIRC, Sec. 249)⁷ Example: TP did not file his/her ITR on April 15, 2021. On May 15, 2021, the TP realized that his/her tax liability amounts to 10 million. On June 15, 2021, BIR demands balance/total to be paid on or before July 15, 2021. TP only paid on August 1, 2021.

The computation of deficiency interest starts on April 15, 2021 and ends on July 15, 2021. While delinquency interest starts on July 16, 2021 and ends on August 1, 2021.

Interest on Extended Payment

• Any person who is qualified and elects to pay the tax on installment but fails to pay the tax or any installment, or any part thereof, on or before the date prescribed; or
• Where the CIR has authorized an extension of time within which to pay a tax or a deficiency tax or any part thereof, from the date of notice and demand until it is paid.