SKP Tax Alert
29 May 2015 | Volume 8 Issue 7
Change in service tax rate - which rate applies to your business?
 
As the rate of service tax in India will be increasing from 12.36% to 14% with effect from 1 June 2015, it is essential that businesses evaluate whether the old or new rate applies to them. Considering the completion of services, date of invoice, and date of payment, you can evaluate the service tax rate to be applied according to the provisions of the Point of Taxation Rules, 2011. 

We have summarised the rates that can be used under different scenarios for your reference in the following cases:
  1. For services covered in the Negative List, which are now taxable from 1 June 2015
  2. For services covered in the Exemption List, which are now taxable from 1 June 2015, and other taxable services, which were hitherto taxable before and after 1 June 2015
  3. For services taxable under the reverse charge mechanism 
I. For services covered in the Negative List, which are now taxable from 1 June 2015:
  Date of issue of invoice Date of payment Taxability
1 Before 1 June 2015 Before 1 June 2015 Not Taxable
2 Before 1 June 2015 After 1 June 2015 Taxable
3 After 1 June 2015 but before 14 June 2015 Before 1 June 2015 Not Taxable
4 After 1 June 2015 but before 14 June 2015 After 1 June 2015 Taxable
5 After 15 June 2015 Before 1 June 2015 Taxable
 
II. For services covered in the Exemption List, which are now taxable from 1 June 2015, and other taxable services, which were hitherto taxable before and after 1 June 2015:
  Date of completion of service Date of issue of invoice Date of payment Point of taxation Applicable rate
1 Before 1 June 2015 After 1 June 2015 After 1 June 2015 Date of payment or date of invoice, whichever is earlier 14%
2 Before 1 June 2015 Before 1 June 2015 After 1 June 2015 Date of issue of invoice 12.36%
3 Before 1 June 2015 After 1 June 2015 Before 1 June 2015 Date of payment 12.36%
4 After 1 June 2015 Before 1 June 2015 After 1 June 2015 Date of payment 14%
5 After 1 June 2015 Before 1 June 2015 Before 1 June 2015 Date of payment or date of invoice, whichever is earlier 12.36%
6 After 1 June 2015 After 1 June 2015 Before 1 June 2015 Date of issue of invoice 14%

III. For services taxable under the reverse charge mechanism:
  Date of issue of invoice Date of payment Applicable rate
1 Before 1 June 2015 Before 1 June 2015 12.36%
2 After 1 June 2015 Before 1 June 2015 12.36%
3 Before 1 June 2015 After 1 June 2015 14%
4 After 1 June 2015 After 1 June 2015 14%

We have mentioned the gross amount of service tax applicable, which would change depending on the nature of service and the proportion of tax payable by the service provider/service receiver. However, there could be an issue for invoices raised by the service provider before 1 June 2015 wherein the service provider would charge 12.36% but if it is paid by the receiver after 1 June 2015, should service tax be computed considering the rate of 14%, since that would be the applicable rate according to the point of taxation?
 
Please note that the above tables have been prepared based on the provisions of the Point of Taxation Rules, 2011. We would like to highlight that there could be a contrary to the above based on the provisions of section 67 of the Finance Act, 1994, which states that the rate of service tax applicable shall be the rate of service tax in force or as applicable at the time when the taxable service is provided or deemed to be provided. Also, there is judicial precedence, which states that the Rules cannot override the provisions of the law/Act.

Accordingly, in our view, a cautious decision must be taken with respect to the rate to be applied. Considering the above ambiguity, it is imperative that businesses analyse the rate of tax to be levied for their transactions.
 
We hope you find this information useful. For any assistance, please feel free to write to us at skp.tax@skpgroup.com
 

SKP
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skp.tax@skpgroup.comwww.skpgroup.com

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ABOUT THIS TAX ALERT
This SKP Tax Alert contains general information existing at the time of its preparation only. It is intended as a news update and is not intended to be comprehensive nor to provide specific accounting, business, financial, investment, legal, tax or other professional advice or opinion or services. This tax alert is not a substitute for such professional advice or services, and it should not be acted on or relied upon or used as a basis for any decision or action that may affect you or your business. Before making any decision or taking any action that may affect you or your business, you should consult a qualified professional adviser and also refer to the source pronouncement/documents on which this tax alert is based. It is also expressly clarified that this tax alert is not a solicitation or an invitation of any sort whatsoever or a source of advertising from SKP Group or any of its entities to create any adviser-client relationship.

Whilst every effort has been made to ensure the accuracy of the information contained in this tax alert, this cannot be guaranteed, and neither SKP Group nor any related entity shall have any liability to any person or entity that relies on the information contained in this publication. Any such reliance is solely at the user's risk.


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