Service tax is a tax imposed by Central Government of India on services offered. An assessee who pays service tax can be either a service receiver or a service provider. Service Tax is coming under Indirect Tax category since the service providers pay the tax and redeem it from the service receivers who receive. Let us take a look at Service Tax Point of Taxation.
Point of Taxation Rules
The “Point of Taxation” is the point in time when a service shall be deemed to have been provided. POT is relevant to determine the due date of payment of tax.
Purpose of POT Rules, 2011
- To introduce clarity in the matter of levy and collection of Service Tax. Such as situations like change of rate of service tax or imposition of service tax on new services.
- On lines of best international practices.
- To link the payment of service tax.
Significance of Point of Taxation
The Service Tax point of taxation is significant for determining the following.
- Applicability of rate of service tax.
- Adjustment for non-provision of service.
- Service Tax Payment.
Service Tax Point of Taxation -At a glance
|POT Rules, 2011||Description|
|Rule 2A||Date of Payment.|
|Rule 3||Determination of Point of Taxation.|
|Rule 4||Determination of Point of Taxation in a case of the change in effective rate of tax.|
|Rule 5||Payment of tax in a case of new services.|
|Rule 7||Reverse Charge Mechanism|
|Rule 8||Determination of the point of taxation in case of Copyrights etc.|
|Rule 8A||Determination of the point of taxation in other cases.|
[Rule 2A] Date of Payment
The Date of payment shall be the earlier of the following dates listed below.
- Date on which the payment is entered in the books of accounts( Payment accounted in books).
- Date on which the payment is credited to the bank account of the person liable to pay tax ( received in the bank account of the individual).
Date of payment in case of new levy or change in effective rate of tax during the intermitted period
During the irregular period when the amount is accounted for in the books of accounts and the same is credited to the bank account.
- When there is a change in the effective rate of tax.
- The service is taxed for the first time (new levy).
Date of payment shall be the date of credited in the bank account
In the following cases, the Date of payment shall be the date of credited in the bank account.
- The credited to the bank account is after 4 working days from the date when there is a change in the effective rate of tax or service is taxed for the first time.
- The payment is made by way of an instrument which is credited to a bank account.
[Rule 3] Determination of Point of Taxation
The Point of Taxation to be the invoice date or payment date whichever is earlier. As per the Rule 3 of the Point of Taxation Rules, 2011-
- The Date of invoice or payment, whichever is earlier, if the invoice is issued within 30 days of completion of provision of service.
- The Date of completion or provision of service or payment, whichever is earlier, if the invoice is not issued within the prescribed period as above.
What if invoice not issued within 30 days?
If invoice not issued within the time specified in Rule 4A of the Service Tax Rules, 1994 (30 days). Then the point of Taxation shall be the Date of Completion of Provision of the Service.
[Rule 4] Determination of point of taxation in case of change in effective rate of tax
Notwithstanding anything contained in Rule 3, the POT in cases where there is a change in effective rate of tax in respect of a service.
If Taxable service has been provided BEFORE the change in effective rate of tax
|Point of Taxation|
|Where the invoice has been issued after the change in effective rate of tax and payment of the invoice is received after the change in effective rate of tax||Earlier of the following
|Where the invoice issued before the change in effective rate if tax but payment is received after the change in effective rate of tax.||
|Where payment is received before the change in effective rate of tax but invoice is issued after the change in effective rate of tax.||
If Taxable service has been provided AFTER the Change in effective rate of tax
|Point of Taxation|
|Where the invoice has been issued before the change in effective rate of tax, but payment for the invoice is made after the change in effective rate of tax||
|Where the invoice has been issued, and the amount of the invoice received before to change in effective rate of tax.||Earlier of the following
|Where the invoice issued after the change in effective rate of tax but the payment has been received before the change in effective rate of tax.||
[Rule 5] Payment of Tax in case of new Services
In a case of new services which was previously not covered due to negative list or exemption notification and is taxed for the first time.
- No tax shall be payable to the extent the invoice issued and the payment received for such invoice before such service became taxable.
- No tax shall be payable if the payment has been received before the service becomes taxable and invoice has been issued within 14 days of the date when the service is taxed for the first time.( receipt date- before levy, invoice date- within 14 days from levy).
[Rule 7] Determination of Point Of Taxation In Case Of Specified Persons
Reverse Charge Mechanism:
The Point of Taxation in respect of the person who are required to pay tax on receipt of service under reverse charge mechanism shall be the date on which payments made. Reverse Charge Mechanism[ Rule 7], Notwithstanding anything contained in Rule 3, Rule 4, or Rule 8 where the recipient of service is liable to pay service tax as a Service Recipient under Sec 68(2) of the Finance Act. Reverse Charge Mechanism with effective from 1 st October 2014, regarding Rule 7.
Rule not to apply if the payment not made within three months from invoice date
Whare the payment is not made within a period of three months from the time of invoice, the point of taxation shall be the date immediately following the said period of 3 months.
Hence, the Point of Taxation in respect of reverse charge whichever is earlier as follows.
- The Payment date.
- The first date that occurs immediately after a period of 3 months from the date of invoice.
The point of Taxation in the case of “Associated Enterprises.”
In the case of ‘Associated Enterprises’ Where the person is offering service outside of India, then the Point of Taxation is as follows.
- Date of debit in the books of account of the individual receiving the service (Service Reciever). (or)
- Date of Making the payment.
Whichever is earlier.
[Rule 8] Determination of point of taxation in case of Copyrights
In respect of royalties and payments regarding copyrights, trademarks, designs or parents under the following circumstances.
- The whole amount of the consideration for the provision of service is not appreciatable at the time when a service performed.
- Eventually, the user or the benefit of these services (as mentioned above) by an individual other than the service provider gives rise to any payment of consideration.
The Service offered shall be treated as having been provided each time,
- When the provider receives a payment in respect of such use or the benefit in respect thereof. or
- When an invoice us issued by the service provider.
Whichever is earlier.
[Rule 8A] Determination of the point of taxation in other cases
Where the point of taxation cannot be determined as per these Rule from the date of invoice or the date of payment / both( date of invoice and date of payment) are not accessible.
- The Central Excise Officer may demand the concerned individual to produce such accounts /documents or other evidence as he may deem necessary.
- After taking into account such as material and effective rate of tax regular at different points of time.