30 January 2017
Our firm has been entered into contract of service in april,2016 for the FY 16-17. Bill produced by the servicing firm for payment in the month of Jan-17 (as per contract).
What will be the tax liability either 14.5 or 15.
02 August 2024
In the scenario where your firm has entered into a service contract in April 2016, and the servicing firm raised the invoice in January 2017, the tax liability for service tax is determined based on the date of invoice and the date of service.
### **Understanding the Service Tax Rate and Transition to GST**
**1. **Service Tax Rate in FY 2016-17:**
**a. **Rate Before June 1, 2016:** - **Service Tax Rate:** Before June 1, 2016, the effective service tax rate was 14.5%. This rate included 14% service tax plus a 0.5% Krishi Kalyan Cess.
**b. **Rate After June 1, 2016:** - **Service Tax Rate:** From June 1, 2016, the rate increased to 15% due to the introduction of the Krishi Kalyan Cess, making the total service tax rate 15% (14% service tax + 0.5% Krishi Kalyan Cess + 0.5% Krishi Kalyan Cess).
**2. **Tax Liability Based on Invoice Date:**
**a. **Invoice Date:** The service tax liability is generally determined based on the date of the invoice or the date of payment, whichever comes first, as per the Point of Taxation Rules.
- **Invoicing in January 2017:** Since the invoice was raised in January 2017, the applicable service tax rate is 15%, regardless of when the contract was signed or when the service was actually performed.
### **Summary of Tax Liability:**
- **Service Tax Rate for Invoice Raised in January 2017:** The tax liability will be at the rate of 15% because the invoice was issued after June 1, 2016. - **Contract Date:** The date when the contract was signed (April 2016) does not affect the rate of service tax applicable to the invoice if it was issued after the rate change.
### **Conclusion:**
For the invoice produced in January 2017, your firm will be liable to pay service tax at the rate of 15%, as the rate change effective from June 1, 2016, applies to invoices raised after that date.
If there are any specific nuances or contractual terms that might affect this standard application, consulting with a tax advisor or professional might be beneficial to ensure full compliance.
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