car hire-overtime

This query is : Resolved

Devarshi Goyal (Querist)
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13 December 2016 Hello, In car hire contract...driver stayed overtime, now car providing co. charging overtime charges which included in Gross amount but he's claiming ST only on actual km charges not on overtime. This charged under RCM. should ST should be calculated on Gross amount?

Devarshi Goyal

Devarshi Goyal (Querist)
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05 January 2017 is anyone here to reply?

Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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18 July 2024 In the scenario where a car hire company charges overtime fees for the driver's extended hours of service, and these charges are included in the gross amount invoiced to the customer, the Service Tax (ST) should typically be calculated on the entire gross amount, including the overtime charges. Here’s a breakdown of how it generally works:

1. **Gross Amount Invoiced:** This includes all charges billed to the customer, including the base charges for the kilometers traveled as well as any additional charges such as overtime fees for the driver.

2. **Service Tax (ST):** According to the Service Tax rules, the tax liability generally arises on the gross amount charged for the taxable service provided. In this case, the car hire service falls under the category of taxable services.

3. **Reverse Charge Mechanism (RCM):** Under RCM, the liability to pay tax is on the service recipient (customer) instead of the service provider (car hire company) for certain notified services. The customer needs to calculate and pay the Service Tax directly to the government on behalf of the service provider.

4. **Calculation of ST:** The Service Tax should be calculated on the entire gross amount mentioned in the invoice, which includes both the actual kilometer charges and the overtime charges. Therefore, when the customer is liable to pay tax under RCM, they should consider the total gross amount for calculating and remitting the Service Tax.

5. **Documentation and Compliance:** It’s essential for both the car hire company and the customer to maintain proper documentation:
- The car hire company should issue a detailed invoice showing all charges, including base charges, overtime charges, and the applicable Service Tax.
- The customer should ensure they calculate and remit the correct amount of Service Tax under RCM based on the total gross amount.

6. **Consultation:** Given that tax regulations can vary by jurisdiction and may change over time, it’s advisable to consult with a tax advisor or a qualified professional who can provide specific guidance based on the current tax laws applicable to your location and circumstances.

By ensuring compliance with the tax regulations and accurately calculating the Service Tax on the entire gross amount, both the car hire company and the customer can avoid potential penalties and maintain proper tax records.

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