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Service Tax Reverse charge system
To comprehend what is a reverse charge mechanism in service tax initially we require to be familiar with regular service tax.
According to area 68( 1) of the Finance Act, 1994, everyone supplying taxable services to any other individual shall pay service tax at the rate defined in section66 Typically, the liability to pay service tax lies with the provider. He shall gather the service tax from the service recipients and hence pay it to the authorities.
Reverse charge system was presented in service tax with impact from 1/7/2012 With this, service receiver is likewise liable to file return and pay service tax in regard of service tax they need to collect and pay to the authority.
All service receivers are not responsible to pay service tax under reverse charge. Only on getting particular services, reverse charge system will come into image. Here I’m talking about some instances where Reverse charge system will come into practice.
1. Provider of products transport agency:
Goods transport company renders the service of transportation of products by road by providing a consignment note. Here the party paying the freight will be the service recipient who will be liable to pay service tax on such service.
2. Solutions of insurance coverage representative:
Where an insurance representative supplies services to an entity continuing insurance company, that entity being a receiver of service is accountable to pay service tax.
3. Functions agreement:
work agreement is joint agreement in which service is offered together with transfer of some product. Here the recipient of service should charge the service tax on the service provided by the other celebration at the rate appropriate.
omitting postal services, insurance coverage and other public utility services, any life assistance services provided by government or local authority are likewise taxable according to this reverse charge system and the complete liability lies with service receivers.
5. Services by directors of business:
Under reverse charge system services offered by directors are likewise draw in service tax. And the business being a recipient of service needs to pay service tax on the service.
6. Leasing automobile:
Providers by way of leasing of taxis, cars and trucks and buses are included under this service. It doesn’t consist of metered cab, public transport and so on
7. Supply of workforce:
Solutions by method of providing workforce like supply of security workforce is covered under reverse charge system.
Little provider exemption:
Little provider exemption is not offered under reverse charge system and service receiver needs to register himself under reverse charge mechanism without considering liability of payment.
When to pay? Point of taxation:
Under reverse charge Point of taxation will be the date of payment to company. In case the payment is not made within 6 months of the issue of invoice, date of invoice shall be thought about as the point of tax.
Center credit availability.:
Service tax paid under reverse charge system is available for cenvat credit if the service gotten is included in definition of input service.
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