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Service tax under reverse charge

ankit jain (Semi-Qualified) (36 Points)

02 November 2016

I have made an advance payment of work contract on which reverse charge is applicable. Whether i should pay service tax on advance payment amount or full bill amount. For Example, Bill amount is Rs. 250000 which will be raised on 15/12/2016 and today on 02/11/16, i have to pay Rs. 100,000 as advance. Please help me, what amount should be paid as service tax under reverse charge.

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4 Replies

satya (Executive Excise) (1839 Points)
Replied 03 November 2016

Reverse charge Mechanism- Under this concept service receiver is liable for payment of service tax to the account of the govt. Point of taxation in case of reverse charge is discussed below;
a) In case advance payment is made to the service provider then date of advance payment is the Point of taxation.
b) If payment is made with in six months from date of the invoice then date of payment will be considered as Point of taxation .
c) If payment is made after six months from the date of invoice then Point of taxation
will be –
a) Date of invoice provided that the invoice has been issued with in 30 days from completion of provision of service ;
b) Date of completion of provision of service if invoice is not issued with in 30 days from completion of provision of service.

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ankit jain (Semi-Qualified) (36 Points)
Replied 03 November 2016

Dear Sir,

Thanks for the reply..

I understood all the things about point of taxation but my query is that either service tax will be paid on advance payment which is part payment of bill amount or full bill amount.

satya (Executive Excise) (1839 Points)
Replied 03 November 2016

Yes, Service tax is payable on the advance payment.

After completing total work and after receiving invoice form him,

release the balance payment and discharge rest of ST payment.

SPRao (Faculity Indirect Taxes) (806 Points)
Replied 03 November 2016

Dear Mr. Ankit,

Service tax is payable on the advance payment of Rs. 100,000, Point of taxation for this is 2nd November, 2016.

That means tax liability arose on 2nd November.

Due for the rest , Rs 1,50,000 , POT is again date of payment.

but remember two things:

1. you have to pay within 3 months ( not 6 months,--- prior to 1st october, 2014, it was six months) from the date of invoice. if not paid, POT will be the following day of the expiry of 3 months. Eg. 3 months period expires by 1st. Feb, the tax liability arises on 2nd february , obviously, you have to pay service tax by 6th of March. Vide first proviso to Rule 7 of POTR, 2011

2. On works contract you are liable to pay only 50% of the total service tax liability under reverse charge.

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