PROCEDURAL ASPECTS
- Special provision for payment of service tax in case of life insurer carrying on life insurance business
An insurer carrying on life insurance business who is liable for paying service tax has the option to pay an amount calculated @ 1% of the gross amount of premium charged by him towards the discharge of his service tax liability instead of paying service tax @ 10%.
However, such option is not available in cases where:
- the entire premium paid by the policy holder is only towards risk cover in life insurance; or
- the part of the premium payable towards risk cover in life insurance is shown separately in any of documents issued by the insurer to policy holder.
- Special provision for payment of service tax in case of services provided in relation to purchase or sale of foreign currency including money changing
Person liable to pay service tax in relation to purchase or sale of foreign currency, including money changing, provided by a foreign exchange broker, including an authorized dealer in foreign exchange or an authorized money changer, referred to in 65(105)(zm) and 65(105) (zzk) shall have the option to pay an amount calculated at the rate of 0.25% of the gross amount of currency exchanged towards discharge of his service tax liability instead of paying service tax @10%.
However, such option shall not be available in cases where the consideration for the service provided or to be provided is shown separately in the invoice issued by the service provider.
Illustration
Buying rate $US 1 = Rs.38, selling rate $US 1 = Rs.40
(i) Person exchanged $100 for equivalent rupees
Transaction value = Rs.3800 (Rs.38 x 100)
Service tax payable = Rs.9.5 (0.25% x 3800)
(ii) Person exchanged equivalent rupees for $100
Transaction value = Rs.4000 (40 x 100)
Service tax payable = Rs.10 (0.25% x 4000).
- Interest on delayed payment of service tax [section 75]
In case payment of service tax is made after its due date, interest is leviable on the amount of tax liable to be paid for the period of delay. Payment of interest is mandatory in all circumstances. There is no provision to waive this interest on delayed payment of service tax.
Every person who fails to deposit the service tax or any part thereof to the account of Central Government within the prescribed period has to pay simple interest at a rate not below 10% p.a. but not exceeding 36% p.a. as may be notified by the Central Government. Currently, the notified rate of interest is 13%.
For computing the period of delay in payment of service tax, the month is counted from the next day from the date on which the payment of service tax was due.
Example,
if service tax is payable by 5th January, one month period for computation of interest would be from 6th January to 5th February.
- Other Points
- Service tax is to be paid on the value of taxable services which is charged by an assessee. Any income tax deducted at source is included in the charged amount.
- Therefore, service tax is to be paid on the amount of income tax deducted at source also.
- Where the amount of service tax is paid in cash, the date of payment is the date on which cash is tendered to the designated bank.
- Payment of service tax into non-designated banks does not amount to payment of service tax.
- In case the amount of service tax is paid by cheque, the date of presentation of cheque to the bank designated by Central Board of Excise and Customs shall be considered as the date of payment, subject to realization of cheque.
- Payment should be rounded off in multiple of rupees.
- PRACTICAL QUESTIONS
Question
Discuss the special provision for payment of service tax in case of services provided in relation to purchase or sale of foreign currency including money changing.
Answer
The person liable to pay service tax in relation to purchase or sale of foreign currency, including money changing, provided by a foreign exchange broker, including an authorised dealer in foreign exchange or an authorized money changer shall have the option to pay an amount calculated at the rate of 0.25% of the gross amount of currency exchanged towards discharge of his service tax liability instead of paying service tax at the rate specified in section 66 of Chapter V of the Act.
However, such option shall not be available in cases where the consideration for the service provided or to be provided is shown separately in the invoice, bill or, as the case may be, challan issued by the service provider.
Question
Piyush, a software developer, has developed a software for Mazars Ltd. He has raised a bill of Rs. 5,00,000 on Mazars Ltd. on 16.01.2010. A sum of Rs.3,50,000 was received from Mazars Ltd. on 28.01.2010 and the balance on 12.05.2010. The questions are:
(a) Is the service provided by Piyush liable to service tax? If yes, then whether Piyush will be liable to pay service tax, even though the same has not been charged by him?
(b) In case Piyush is liable to service tax, what is the value of taxable service and the service tax payable by him for the financial year 2009-10?
Answer
(a) Yes. As per clause (i) of section 65(105) (zzzze), development of software is liable to service tax under information technology software services.
Yes, Piyush will be liable to pay service tax. Section 68 of the Finance Act, 1994 casts the liability to pay service tax upon the service provider or upon the person liable to pay service tax as per Rule 2(1)(d). This liability is not contingent upon the service provider realizing or charging the service tax at the prevailing rate. The statutory liability does not get extinguished if the service provider fails to realize or charge the service tax from the service receiver. Hence, Piyush will be liable to pay service tax.
(b) When the assessee has not charged service tax because of the nature of service or has failed to recover the service tax from the client / customer as he is not aware that his services are taxable, the amount recovered from the client in lieu of having rendered the service is taken to be inclusive of service tax. Accordingly service tax payable is calculated by making back calculations.
Since, service tax is payable on receipt basis, in the F.Y. 2009-10, only Rs.3,50,000 will be liable to service tax.
The rate of service tax payable:
Basic rate
|
10%
|
Education cess of 2% and Secondary and higher
education cess of 1% (3% of 10%)
|
10.30%
|
Value of taxable service
|
Gross amount charged
------------------------------ X 100
(100 + Effective rate)
3,50,000 x 100
= --------------------
110.30
= Rs. 3,17,316.00 (approx.)
|
Service tax payable
|
3,50,000 x 10.30
= -----------------------
110.30
= Rs.32,684.00 (approx.)
|
Question
Mr. Bakul, practising Chartered Accountant received Rs. 25,00,000 in the August, 2010. He paid service tax on 6th September 2010 by way of GAR 7 challan. You are required to calculate Interest on delayed payment of service tax.
Answer
Service tax @ 10.30% on Rs. 25,00,000 = Rs. 2,57,500. Due date of payment of service tax is 5th September. Since 5th September, 2010 is a holiday; the due date of payment of service tax falls on 6th September, 2010. Hence, there is no delay in payment of service tax. Interest is Nil.
Question
Woodland Ltd. has agreed to render services to Mr. John. Following are the details of such service:-
Contract for the service was entered in the month of October, 2010. Advance of Rs. 90,000 for the said contract was received in the month of November, 2010. Total value of services, billed on 25th February, 2010 was Rs. 3,00,000 which includes non-taxable services of Rs. 50,000, Balance amount is received in the month of March, 2010.
When does the liability to pay service tax arise and for what amount? Contract contains clear details of services; consideration and service tax are charged separately, as mutually agreed upon.
Answer:
Particulars
|
Rs.
|
Advance received towards all services in November, 2010
|
90,000
|
Amount billed for taxable service = 3,00,000 – 50,000
|
2,50,000
|
Advance received towards taxable services = 90,000 x (2,50,000/3,00,000)
|
75,000
|
Service tax @ 10% = (75,000 x 10%)
|
7,500
|
Education Cess @ 2% = (7,500 x 2%)
|
150
|
SAH @ 1% = (7,500 x 1%)
|
75
|
Total service tax liability
|
7,725
|
The due date for payment of service tax will be 5th December, 2010
Particulars
|
Rs.
|
Balance amount received in March 2010 = 3,00,000 – Rs. 90,000 = 2,10,000
| |
Amount received towards taxable services = 2,10,000 x (2,50,000/3,00,000)
|
1,75,000
|
Service tax @ 10% = (1,75,000 x 10%)
|
17,500
|
Education Cess @ 2% = (17,500 x 2%)
|
350
|
SAH @ 1% = (17,500 x 1%)
|
175
|
Total service tax liability
|
18,025
|
In this case, the due date for payment of service tax will be 31st March, 2010.
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