How to reduce the Service Tax Liability? – Tax Planning

How to reduce the Service Tax Liability? – Tax Planning, My this article tells you about the ways for reducing the service tax liability and make the tax planning in such a way that the payment you have to make is the minimum. This article will help to take the right option to be taken to get the lowest tax liability. Before reading this article please refer to the basic principles of service tax than only you would be able to understand this article.

How to reduce the Service Tax Liability? – Tax Planning

Making Service Tax liability lowest:

1. SSP Exemption –

There is a basic exemption limit of Rs 10 lakhs up to which no service tax is to be paid. If the value of taxable services exceeds Rs 10 lakhs then only service tax payment is to be made. But claiming SSP would restrict the assessee from getting the CENVAT credit. So it would be beneficial for the assessee to get the credit if the inputs purchased by the assessee are large and service would fully consume the credit. The SSP exemption is an option given to the assessee. It is not compulsory for the assessee to take the exemption. If assessee has benefits while adopting the CENVAT credit than he/she should forgo the exemption. The factors deciding the option to be taken are Contract type, Quantum of CENVAT, Availability of CENVAT credit.

2. Export Service providers –

As the government wants the foreign currency to come in India, it has provided many tax incentives to the Export Service providers so that foreign currency will come and the development of the country would be growing. There are various tax benefits such as there is Refund under Rule 5 of CENVAT Credit Rules, 2004, EPCG scheme, etc which the detail study has to be made so that proper benefit is claimed by the assessee.

3. Follow the Law –

The best tax planning is to follow the law and do not break the rules and the regulations of the Act. The default to which would result into huge amount of interest or penalty which would have to be borne by service provider in case of default. There can be no excuses for the non payment of the service tax. So the assessee should be aware of the provisions of the Act or should appoint proper person for the compliance of the same. The rate of interest for non compliance are minimum 18% per annum which can go up to 30 % from case to case basis.

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4. Claim only if available –

This words would tend to mean that the exemption should be claimed only when it is actually available to you. Every exemption has conditions attached to each which needs to follow in every case, if not followed then it would lead to high amount of penalty or interest or out of pocket service tax payment. For example, If Mr. X is a Service Receiver and has taken services such services which are liable for the Reverse charge mechanism. Now thinking it the amount being 2 lakhs, thought that there is SSP exemption available so that he had not paid any amount to the government. While the government found that, it raised a demand on the receiver and so he had to pay the amount along with Interest.

5. There are various exemptions in the form of Negative List, Mega exemption List, which needs to be referred by the assessee and so that he would not pay any extra service tax.