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Service Tax Rate and When to Pay,Charge Service Tax

Finance Act, 1994 prescribes when to pay, charge service tax and also rate of current tax and POINT OF TAXATION RULES, 2011 Provides at what time or when one has to pay the service tax. After introduction of negative list concept in 2012, every person who is providing services is liable to pay/charge service tax but question arises at what rate on one has to pay service tax? Current service tax rate is 12.36%. This new service tax rate of 12.36% was introduced in the Budget of 2012 before that service tax rate was 10% plus education cess of 3% and this current service tax rate of 12.36% is calculated in this way, 12% service tax rate and 3% education cess on bill amount.

Since service tax is indirect tax, so provider of services will charges it from the receiver of the services and similarly receiver of the services can take the credit of service tax paid, subject to CENVAT Credit Rules, 2004. Rule 3 of CENVAT Credit Rules, 2004 deals with credit of Service tax paid.

Secondly at what time or when one has to pay the service tax?

Time of Payment of service tax is decided by POINT OF TAXATION RULES, 2011, Rule 3 and Rule 4 will decide the Determination of point of taxation. As per the rules 3, the time when the invoice for the service provided or to be provided is issued: Provided that where the invoice is not issued within fourteen days of the completion of the provision of the service, the point of taxation shall be date of such completion.

(a)  in a case, where the person providing the service, receives a payment before the time specified in clause (a), the time, when he receives such payment, to the extent of such payment.

Explanation .- For the purpose of this rule, wherever any advance by whatever name known, is received by the service provider towards the provision of taxable service, the point of taxation shall be the date of receipt of each such advance.”

4. Determination of point of taxation in case of change in effective rate of  tax - Notwithstanding anything contained in rule 3, the point of taxation in cases where there is a change in effective rate of  tax in respect of a service, shall be determined in the following manner, namely:-

(a)     in case a taxable service has been provided before the change in effective rate of tax,-

(i)   where the invoice for the same has been issued and the payment received after the change in effective rate of  tax, the point of taxation shall be date of payment or issuing of invoice, whichever is earlier; or

(ii)  where the invoice has also been issued prior to change in effective rate of  tax but the payment is received after the change in effective rate of  tax, the point of taxation shall be the date of issuing of invoice; or

(iii)  where the payment is also received before the change in effective rate of  tax, but the invoice for the same has been issued after the change in effective rate of  tax, the point of taxation shall be the date of payment;

(b)  in case a taxable service has been provided after the change in effective rate of  tax,-

(i)  where the payment for the invoice is also made after the change in effective rate of  tax but the invoice has been issued prior to the change in effective rate of  tax, the point of taxation shall be the date of payment; or

(ii)  where the invoice has been issued and the payment for the invoice received before the change in effective rate of  tax, the point of taxation shall be the date of receipt of payment or date of issuance of invoice, whichever is earlier; or

(iii)  where the invoice has also been raised after the change in effective rate of  tax  but the payment has been received before the change in effective rate of  tax , the point of taxation shall be date of issuing of invoice.

Explanation.- For the purposes of this rule, “change in effective rate of tax” shall include a change in the portion of value on which tax is payable in terms of a notification issued under the provisions of Finance Act, 1994 or rules made thereunder.

5. Payment of tax in cases of new services.- Where a service, not being a service covered by rule 6, is taxed for the first time, then, –

(a)      no tax shall be payable to the extent the invoice has been issued and the payment received against such invoice before such service became taxable;

(b)      no tax shall be payable if the payment has been received before the service becomes taxable and invoice has been issued within the period referred to in rule 4A of the Service Tax Rules, 1994.

6.  Determination of point of taxation in case of continuous supply of service.- Notwithstanding anything contained in rules 3,4 or 8, in case of continuous supply of service, the `point of taxation’ shall be,-

(a)   the time when the invoice for the service provided or to be provided is issued:

Provided that where the invoice is not issued within fourteen days of the completion of the provision of the service, the point of taxation shall be date of such completion.

(b)  in a case, where the person providing the service, receives a payment before the time specified in clause (a), the time, when he receives such payment, to the extent of such payment.

Explanation 1. – For the purpose of this rule, where the provision of the whole or part of the service is determined periodically on the completion of an event in terms of a contract, which requires the service receiver to make any payment to service provider, the date of completion of each such event as specified in the contract shall be deemed to be the date of completion of provision of service.

Explanation 2.- For the purpose of this rule, wherever any advance, by whatever name known, is received by the service provider towards the provision of taxable service, the point of taxation shall be the date of receipt of each such advance.

7. Determination of point of taxation in case of associated enterprises.- Notwithstanding anything contained in these rules, the point of taxation in respect of,-

(a)    the services covered by sub-rule (1) of rule 3 of Export of Services Rules, 2005;

(b)    the persons required to pay tax as recipients under the rules made in this regard in respect of services notified under sub-section (2) of section 68 of the Finance Act, 1994;

(c)    individuals or proprietary firms or partnership firms providing taxable services referred to in sub-clauses (p), (q), (s), (t), (u), (za), (zzzzm) of clause (105) of section 65 of the Finance Act, 1994, shall be the date on which payment is received or made, as the case may be:

Provided that in case of services referred to in clause (a), where payment is not received within the period specified by the Reserve Bank of India, the point of taxation shall be determined, as if this rule does not exist.

Provided further that in case of services referred to in clause (b) 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 also 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 credit in the books of account of the person receiving the service or date of making the payment whichever is earlier.

8. Determination of point of taxation in case of copyrights, etc. .- In respect of royalties and payments pertaining to copyrights, trademarks, designs or patents, where the whole amount of the consideration for the provision of service is not ascertainable at the time when service was performed, and subsequently the use or the benefit of these services by a person other than the provider gives rise to any payment of consideration, the service shall be treated as having been provided each time when a payment in respect of such use or the benefit is received by the provider in respect thereof, or an invoice is issued by the provider, whichever is earlier.

9. Savings.- Nothing contained in these rules shall be applicable,-

(i)     where the  provision of service is completed; or

(ii)    where invoices are issued

prior to the date on which these rules come into force.

Provided that services for which provision is completed on or before 30th day of June, 2011 or here the invoices are issued upto the 30th day of June, 2011, the point of taxation shall, at the option of the taxpayer, be the date on which the payment is received or made as the case may be.

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One thought on “Service Tax Rate and When to Pay,Charge Service Tax
  • Rekha Dayal says:

    It’s been since more than 4 years that the Pan number was allotted returns filed.
    Tax deducted at source by Delhi Electricity Regulatory Commission but no refund has been received.On receiving enquiry from the Revenue Department was informed by the computer cell, I. Mayur Bhawan, New Delhi that the name is incorrect in the official records.
    The officials confirmed that the name shall be rectified which according to the coupon number is in order.Now the pan card has not yet been received.

    It is important for the department to confirm that the refund is not made to someone whose name was inserted on the number allotted to me .
    Please confirm that appropriate orders are issued to confirm that refund on my Pan number is not being transferred to the account of the person whose name is entered erroneously.

    I had submitted an application by hand for correcting the error and issuing the pancard .My identity can be tallied with the tax deducted at source by DERC.
    Early action will be appreciated