HOW TO HANDLE ISSUES RELATING TO CHANGE IN SERVICE TAX RATE

Among other changes... the most important that has been made effective w.e.f. 01.06.2015 is the Enhancement of Service Tax Rate (from 12.36% including cesses to 14% i.e. no more cesses to be added).

 

This amendment will create issues in such cases where invoices have been issued prior to 01.06.2015 but payment is being received after enhancement or there may be a situation where Services have been provided earlier even invoice has been raise prior to change but no payment has still been received. 

 

In such cases Rule 4 of the Point of Taxation Rules, 2011 shall come into play. In a nut shell following needs to be kept in mind:

 

1. If Service Provision is complete prior to change in rate (i.e. till 31.05.2015) and Invoice has also been raised prior to the change (i.e. 31.05.2015) but Payment is to be received after the change (i.e. on or after 01.06.2015) - THE RATE APPLICABLE SHALL BE 12.36%
2. If Service Provision is complete till 31.05.2015 and Invoice has been raised on or after 01.06.2015 but Payment is also received prior to 31.05.2015 then in such case - THE RATE APPLICABLE SHALL BE 12.36%
3. If Service Provision is complete till 31.05.2015 and Invoice has been raised on or after 01.06.2015 and Payment is also to be received after 01.06.2015 then in such case -  THE RATE APPLICABLE SHALL BE 14% 
4. If Invoice has been raised till 31.05.2015 in advance and some part of total consideration has been paid till 31.05.2015 butService Provision is being done on or after 01.06.2015 then - THE RATE APPLICABLE SHALL BE 12.36% (in respect of such amount as is paid prior to 31.05.2015) and for balance amount to be paid after 01.06.2015 - THE RATE APPLICABLE SHALL BE 14%
5. Even if entire consideration has been received on or prior to 31.05.2015 but no invoice has been raised till 31.05.2015 and neither any part of service has been provided till that date then - THE RATE APPLICABLE SHALL BE 14%.
6. Even if entire service has been provided on or after 01.06.2015 but both payment as well as invoicing has been done till 31.05.2015 then - THE RATE APPLICABLE SHALL BE 12.36%

The above provisions can be more easily understood by the given chart.

 

Hope, this information is useful for the readers... 

 

Feel free to communicate for clarifications