Income tax and Service tax
This query is : Resolved
11 April 2016
Professional received 9 lakh as professional receipt on cash basis. But as per accrual basis , his receipts is 12 lakhs. Can we claim to follow cash basis under service tax law and accrual basis under income tax law. Is he liable for service tax registration. What are the possible complications if any.
11 April 2016
Every service provider is required to apply for service tax registration if the value of service provided by him during the year is more than Rs. 9 Lakhs, but the tax would be payable only when the value of service provided is more than Rs. 10 Lakhs.
Refer Notification Notification No. 4/2012 – Service Tax dated 17.03.2012 and
Notification No.3/2012 – ST, dated 17-3-2012 for clarification regarding payment of ST on receipt basis/Bill basis
Refer Notification Notification No. 4/2012 – Service Tax dated 17.03.2012 and
Notification No.3/2012 – ST, dated 17-3-2012 for clarification regarding payment of ST on receipt basis/Bill basis
11 April 2016
My query is unresolved. Still confused.
31 July 2024
Yes, you can follow different bases for income tax and service tax reporting, but there are specific considerations and complications to be aware of. Here's how it works and the issues you may encounter:
### **1. **Service Tax Reporting (Cash Basis)**
**A. Can You Follow Cash Basis for Service Tax?**
Yes, under the Service Tax Law, you can choose to account for service tax on a cash basis or accrual basis. However, once you choose a method, you must consistently apply it.
**B. Service Tax Registration Requirement**
A professional is required to obtain Service Tax registration if their aggregate value of taxable services exceeds the threshold limit specified by the law. As of the last update, the threshold limit was Rs. 10 lakhs for service providers.
Since your professional receipts are Rs. 9 lakh on a cash basis but Rs. 12 lakh on an accrual basis, you need to assess:
- **If the receipts exceed the threshold limit on an accrual basis, registration is mandatory.**
- **You should register if you anticipate exceeding the limit in the future or if your receipts have consistently been high.**
**C. Filing and Payment**
- **Service Tax should be calculated on the receipts you have actually received if you are following the cash basis.**
- **You should file your returns based on the method chosen and ensure that service tax is paid on time.**
### **2. **Income Tax Reporting (Accrual Basis)**
**A. Income Tax Reporting**
For income tax purposes, professionals are generally required to report their income on an accrual basis. This means you recognize income when it is earned, not when it is received.
**B. Differences in Reporting**
- **Accrual Basis Reporting:** If your receipts are Rs. 12 lakhs on an accrual basis, you should report this amount in your income tax return.
- **Cash Basis Reporting for Service Tax:** You can report the receipts of Rs. 9 lakh for service tax purposes if following the cash basis.
### **3. **Potential Complications**
**A. **Consistency Issue**
- **Service Tax:** You must consistently apply the chosen basis (cash or accrual) and adhere to it in your filings.
- **Income Tax:** Reporting on an accrual basis is generally required.
**B. **Cross-Verification**
- **If your income tax and service tax reporting bases differ, ensure that you have proper documentation to support each method.**
- **Maintain detailed records of when income is earned vs. when it is received.**
**C. **Tax Audit**
- **You may be subject to scrutiny if the service tax and income tax reports show significant discrepancies.**
- **Be prepared to justify the difference in the basis of accounting if queried by tax authorities.**
**D. **Regulatory Compliance**
- **Ensure compliance with all regulatory requirements for both service tax and income tax to avoid penalties and interest.**
### **Summary**
- **Service Tax:** Follow the chosen basis (cash or accrual) consistently. Register if your receipts exceed the threshold limit.
- **Income Tax:** Report income on an accrual basis.
- **Complications:** Maintain clear records, and be prepared for potential scrutiny or cross-verification.
If you have further questions or need more specific advice, consulting with a tax professional who can provide guidance based on the latest regulations and your individual situation is recommended.
### **1. **Service Tax Reporting (Cash Basis)**
**A. Can You Follow Cash Basis for Service Tax?**
Yes, under the Service Tax Law, you can choose to account for service tax on a cash basis or accrual basis. However, once you choose a method, you must consistently apply it.
**B. Service Tax Registration Requirement**
A professional is required to obtain Service Tax registration if their aggregate value of taxable services exceeds the threshold limit specified by the law. As of the last update, the threshold limit was Rs. 10 lakhs for service providers.
Since your professional receipts are Rs. 9 lakh on a cash basis but Rs. 12 lakh on an accrual basis, you need to assess:
- **If the receipts exceed the threshold limit on an accrual basis, registration is mandatory.**
- **You should register if you anticipate exceeding the limit in the future or if your receipts have consistently been high.**
**C. Filing and Payment**
- **Service Tax should be calculated on the receipts you have actually received if you are following the cash basis.**
- **You should file your returns based on the method chosen and ensure that service tax is paid on time.**
### **2. **Income Tax Reporting (Accrual Basis)**
**A. Income Tax Reporting**
For income tax purposes, professionals are generally required to report their income on an accrual basis. This means you recognize income when it is earned, not when it is received.
**B. Differences in Reporting**
- **Accrual Basis Reporting:** If your receipts are Rs. 12 lakhs on an accrual basis, you should report this amount in your income tax return.
- **Cash Basis Reporting for Service Tax:** You can report the receipts of Rs. 9 lakh for service tax purposes if following the cash basis.
### **3. **Potential Complications**
**A. **Consistency Issue**
- **Service Tax:** You must consistently apply the chosen basis (cash or accrual) and adhere to it in your filings.
- **Income Tax:** Reporting on an accrual basis is generally required.
**B. **Cross-Verification**
- **If your income tax and service tax reporting bases differ, ensure that you have proper documentation to support each method.**
- **Maintain detailed records of when income is earned vs. when it is received.**
**C. **Tax Audit**
- **You may be subject to scrutiny if the service tax and income tax reports show significant discrepancies.**
- **Be prepared to justify the difference in the basis of accounting if queried by tax authorities.**
**D. **Regulatory Compliance**
- **Ensure compliance with all regulatory requirements for both service tax and income tax to avoid penalties and interest.**
### **Summary**
- **Service Tax:** Follow the chosen basis (cash or accrual) consistently. Register if your receipts exceed the threshold limit.
- **Income Tax:** Report income on an accrual basis.
- **Complications:** Maintain clear records, and be prepared for potential scrutiny or cross-verification.
If you have further questions or need more specific advice, consulting with a tax professional who can provide guidance based on the latest regulations and your individual situation is recommended.
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