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Service tax on advance payment

Jagjit Singh (IT and Software services) (26 Points)

22 September 2016

I am working with domestic Indian companies. The company paid me Advance for the IT Software services. but did not pay service tax on advance amount and also deducted TDS on the advance amount paid.

Is this correct?

There are 3 milestones

1. advance

2 Milestone 1

3. Milestone 2

I want to understand how many invoices I have to raise to them in Total and how to apply service tax on each invoice.

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3 Replies

Mukesh Saini (STUDENT) (73 Points)
Replied 22 September 2016

collect the STax from them.

Saket Agarwal (Chartered Accountant) (274 Points)
Replied 24 September 2016

The Service Tax law does not tell you when to raise an Invoice. That is a decision left entirely on your Company.

However, based on when you have raised an Invoice, when the payments were received and when the Provision of Service was complete, the liability to pay ST shall be determined.

Rule 3 of Point of Taxation Rules say that earlier of Receipt date or Invoice date shall be considered for determining when the Service Tax has to paid. In your case since you have received an advance, ST has to be calculated on such advance assuming that the amount received was inclusive of ST, SBC and KKC. Also, when computing these taxes you have to include the amount of TDS deducted by the payer in the amount received as well.

Example:

Received Rs.90 in Bank after a TDS of Rs.10

ST to be paid = ((90+10)/115)*14

SBC = ((90+10)/115)*0.5

KKC = ((90+10)/115)*0.5

Please read Rule 3 and Rule 9 of Point of Taxation Rules to double check.