Wednesday, August 22, 2012

DUE DATE-POINT OF TAXATION UNDER REVERSE CHARGE (SERVICE TAX )


on Wednesday, August 22, 2012

Reverse Charge Mechanism has a old history in service tax Act/Rules. Under this mechanism service receiver  is liable to deposit tax instead of Service provider and in few cases Both service provider and service receiver is liable to deposit the tax in prescribed ratio. In this post we are discussing the due date on which service tax is liable to be deposited by the service receiver.

Service tax due date to deposit is directly linked to point of taxation means on which tax is due as per point of taxation rule. If point of taxation is fixed then service tax will be payable on 5th/6th of next month in which point of taxation falls.
Suppose: Point of taxation is fixed on 21 August (in month of August). Then Service tax is payable on 5th of September in case of offline payment and 6th of September in case of online (e-payment). 

However where Service tax payment can be made on quarterly basis , tax due date is 5th/6th of next month after the end of quarter.

Now the point is when Point of taxation falls in case of reverse charge.This has been provided in rule 7 of point of taxation rule.

Rules 7. Determination of point of taxation in case of specified services or persons.—
Notwithstanding anything contained in these rules, the point of taxation in respect of the persons required to pay tax as recipients of service under the rules made in this regard in respect of services notified under sub-section (2) of section 68 of the Act, shall be the date on which payment is made:
Provided that, where the payment is not made within a period of six months of the date of invoice, the point of taxation shall be determined as if this rule does not exist:
Provided further that in case of “associated enterprises”, where the person providing the service is located outside India, the point of taxation shall be the date of debit in the books of account of the person receiving the service or date of making the payment whichever is earlier.‟



Date of payment By service Recipient is Point of taxation (general rule): As per rule 7 of the point of Taxation Rules 2011(amended ) In case where the service recipient is liable to pay tax , the point of taxation shall be the date of payment against such services.

If payment is not made with in six months(exception) :However , the said rule provides that in case the payment is not made with in 6 months from the date of invoice , then the point of taxation shall be determine , as the rule does not exist . Thus the point of in that case would be as per rule 3.
  1. If the invoice is issued with in the period specified in rule 4A of  service tax rules ,1994(30days wef 01.04.2012 earlier 14 days) from the date of completion of service : Date of issue of invoice or receipt of payment ,which ever is earlier.
  2. If invoice is not issued with in prescribed time: Date of completion of service or receipt of payment (payment date).
Interest is leviable if payment delayed beyond six months :In payment is not made in with in 6 months as given above then Point of taxation is advanced as per point number one and two given above. In such cases recipient would be liable to pay interest on delayed payment of  service tax under section 75 of the Finance act, 1994.

Example: Suppose a Service has been provided by Ram(SP) to Sham Ltd(SR) and date of completion of service is 31.07.2012.
Determine point of taxation if
  1. Payment is made in advance on 15.07.2012(Advance)
  2. Payment is made  on 15.01.2013(with in 6 months)
  3. Payment is made  on 15.03.2013(after  6 months)
    • Bill is raised on 15.08.2012 (with in 30days as prescribed  rule 4A)
    • Bill is raised on 15.09.2012( After 30 days as prescribed in rule 4A) 

Ans: Point of taxation in above case will be as under.
  1. 15.07.2012(date of advance payment)
  2. 15.01.2013(date of Payment)
  3. Rule 7 first proviso read with rule 3
    • 15.08.2012 (date of Invoice)
    • 31.07.2012(date of completion of service)
Update :Point of taxation rules for reverse charge has been changed wef 01.10.2014
Read Details about all services Falls under Reverse Charge Mechanism From 01.07.2012.

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  1. Dear Sir,

    We running trust and we are getting some funds from schools for construction of their school we are also contributing and constructing school my question is when we receive fund from school is it service tax applicable ?. please help me and our trust unde 80G

    ReplyDelete
    Replies
    1. Your query is not very much clear.

      However Donation received by trust is not taxable to service tax .

      Pls provide complete detail.

      Delete
  2. Dear Sir,

    I am having individual proprietorship concern doing a business of installation of Air conditioners and i will be raising invoices for the same and i am charging full rate of service tax on my bills for the installation charges and paying the same to department whenever i receive the payment. But in reverse service tax mechanism what will be my liabilities and all the invoices i would be raising is only to companies. please suggest

    ReplyDelete
    Replies
    1. Installation of ACs can be done with or without material supplied in contract .So accordingly you have two situation.

      1.If Installation charges are including material and vat is payable on material then

      1A) tax is payable on gross work contract -(material used+VAt)or

      1B)tax is payable on 40% of Total contract value.

      In above 1A and IB ,reverse charge is applicable so what ever the service Tax is due ,50 % tax is payable by you and 50 % is to be deposited by Company.Further you can avail cenvat credit on capital goods and input services availed if any.

      http://www.simpletaxindia.net/2012/06/value-of-service-works-contract.html


      2. If without material then it is not works contract ,so it remains as service contract only and tax is payable as usual on 100% of the value charged an tax is to be deposited by you.

      Service tax is now payable on the invoice basis now , but if service provided is less than 50 lakh then you can deposit tax on receipt basis.
      http://www.simpletaxindia.net/2012/03/service-tax-on-receipt-50-lakh-point-of.html

      Delete
  3. Dear Sir,
    I am having a individual proprietorship firm and doing business of installation of air conditioners. However as of now i will be charging 100% service tax on the bills which i have raising and paying the same to department as and when i receive the payment. and i will be paying the tax quarterly basis. And all my invoices will be raised to companies. Please guide me in service tax reverse charges mechanism what will be my liabilities and how to raise the invoice and pay the taxes accordingly.

    ReplyDelete
    Replies
    1. Most Part is answered above.

      So bill as shown above , opt scheme of adhoc pricing if applicable on you . In service tax portion .first calculate 12.36 % and then reduce 50% (payable by receiver if company) and net to be charged from the company.

      Delete
  4. As a Service Receiptant, having received the Service of Advocate, Work Contract or Manpower, we have to pay service tax as a Service Receiver, could any one pl. clarify that :

    If an individual or Firm don't have S Tax Number or don't charge service tax - 1. Is Service Tax Payable by us as a Company ?? 2. if yes, should the ST Deposited by us have to be deducted from the payment of vendor or not ??

    ReplyDelete
  5. My client is a private limited company involved in works contract. It provides the services of interior decorator to companies and other persons also. What is the service tax position in case of my client? I have heard that the body corporates are out of purview of reverse charge mechanism hence they have to recover 100% serivice tax at applicable rates and pay in the govt treasury. If yes pl quote under which rule or notification in the finance act?

    ReplyDelete
    Replies
    1. As per notification 30/2012 (link given below),reverse charge on works contract applicable only if service are being provided by individual,firm , huf or aop , in other case like body corporate ,society etc service tax reverse charge not applicable

      http://www.simpletaxindia.net/2012/06/new-services-under-reverse-charge-in.html

      Pls check this link

      Delete
    2. Since your client is a BODY CORPORATE providing services of work contract, partial reverse charge is not applicable. Your client need to pay 100% of Service Tax on Taxable Value. However, it can choose value of taxable service by ref. to Rule 2A of Service Tax (Determination of Valuation) Rules, 2006 @ 40%/60% or 70%. But it seems your client is not providing works contract as you said it provides services of interior decorator. Please check if that comes under work contract.

      Delete
    3. In works contract, there must be transfer of property in goods supplied which is missing in interior decoration. So pay tax on 100% value of taxable service.

      Delete
  6. HOW TO CALCULATE INTEREST ON SERVICE TAX AFTER DUE DATE.

    ReplyDelete
  7. HI Sir,

    Can you please send me works contract invoice format with reversal charges.

    ReplyDelete