Service Tax – Point of Taxation 2017 for CA CMA CS

| November 15, 2016 | 0 Comments
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Service Tax Act – Point of Taxation. Hello CA CMA CS & other students today we are giving information regarding change in effective rate of taxation in service tax act. In this article we providing brief notes about Service Tax – point of taxation rules like Rule 4, Rule 5B, Rule 6. Service Tax rate is increased to 14 %.

Introduction:

Finance Bill, 2015 has proposed to increase the service tax rate to 14% by amending Section 66B. The said bill has received President’s assent on 14/05/2015. The increased rate is going to be effective from 01.06.2015. As there is a change in rate of tax, the applicability of new service tax rate assumes significant importance. Further, there are conflicting provisions in the law creating much ambiguity on this issue.

ALSO SEE :

Service Tax Act Point of Taxation

Point of Taxation Rules, 2011:

Point of Taxation Rules, 2011 are brought into effect from April 2011 onwards to determine the point of taxation (POT) i.e. point of time when a service is deemed to have completed. This point of taxation when introduced has twofold objectives. One is that the applicable rate of service tax is one prevailing on date of POT. The other one is that service tax is payable immediately by 5th/6th of a month subsequent to the calendar month in which POT occurs.

Rule 5B of the Service Tax Rules, 1994 provides that rate of tax shall be the rate prevailing at the time when the services are deemed to have been provided under the rules made in this regard. Consequently, Rule 4 of the Point of Taxation Rules, 2011 provides for determination of POT when there is a change in service tax rate.

The other rule of Service Tax Rules, 1994 that refers to Point of Taxation Rules, 2011 is Rule 6. This rule provides that service tax shall be paid by 5th or 6th of the month immediately following the month in which services are provided or deemed to be provided as per the rules framed in this regard. As Rule 6 still exists, it can be concluded without any doubt that Point of Taxation Rules, 2011 are still relevant for determining the due date for payment of service tax.

Coming to Rule 4 of the Point of Taxation Rules, 2011, it provides that applicability of service tax rate depending on timing of invoice and payment for the taxable service and they completely ignore the date on which service is provided. It provides as follows;

  1. Where services provided prior to change in service tax rate, new rate is applicable if invoice is issued or payment is received after the change in service tax rate. Otherwise old rate is applicable.
  2. Where services are provided after the change in service tax rate, old rate is applicable if invoice is issued or payment is received before the change in service tax rate. Otherwise new rate is applicable.

This rule has received much attention from the service sector and every one is aware that these rules are required to be referred to for changes in service tax rate. However, with effect from 18.05.2012, a new Section 67A is introduced in Finance Act, 1994 which also provides for determination of service tax rate. Further, with effect from same date, Rule 5B of the Service Tax Rules, 1994 which provides for determination of service tax rate with reference to the point of taxation rules is deleted. All these amendments cast doubt on relevance of the Rule 4 of the Point of Taxation Rules, 2011 after 18.05.2012.

Point of Taxation Rules – 4

Here is a chart of Rule 4 explaining the situations that might arise :

Where there is a change in effective rate of tax in respect of a service Rule 4 (a)- Taxable Services Provided- Before- the change in effective rate
Invoice Issue Date Payment Received Date Point of Tax Date
i After Change After Change The Earlier Date
ii Before Change After Change Date of Invoice
iii After Change Before Change Date of Payment
>> >>>> >>>>
Rule 4 (b)- Taxable Services Provided- After the change in effective rate
Invoice Issue Date Payment Received Date Point of Tax Date
i Prior to Change After Change Date of Payment
ii Before Change Before Change The Earlier Date
iii After Change Before Change Date of Invoice
>> >>>> >>>>
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