This reverse charge mechanism was first introduced from 01-01-2005 on 4 services namely telecommunication service, general insurance business, insurance auxiliary service, Goods Transport Agency services
Reverse Charge Mechanism is now, classified into two categories.
A. Full Reverse Charge: In this Mechanism, the Service receiver alone is liable to pay Service Tax
B. Partial/Joint Reverse Charge: In this Mechanism, both the service receiver and the service provider are liable to pay service tax at specified percentage of the value of taxable service.
Reverse charge is primarily applicable on the following specified services:
- Insurance Services.
- Services by a recovery agent to an NBFC.
- Good Transportation Agency Services
- Sponsorship Services.
- Arbitral Services
- Legal Services
- Services by a director to a Company or a Body Corporate.
- Support Services.
- Supply of Manpower Services.
- Mutual Fund Services.
- Lottery Services.
- Import Services.
- Aggregator Services.
- Rent-A-Cab Services.
- Works Contract Services.
No Threshold exemption:
Small Service providers are generally entitled to threshold exemption of ` 10 Lakhs on satisfaction of certain conditions.
Such exemption is not applicable to service receivers under reverse charge Mechanism.
Even if service provider does not charge service tax in the invoice, being a small service provider having taxable turnover less than ` 10 lakhs, the service receiver is still liable to pay service tax.
|
Services under Partial Reverse/ Joint Charge Mechanism |
The services on which a notified portion of the service tax liability is to be paid by the service provider and the balance is to be paid by the service recipient are as listed below:
|
Sl. |
Services by way of- |
Service Provider |
Service Recipient |
Service Provider |
Service Recipient |
|
1 |
Renting of a motor vehicle |
50% |
50% |
Individual/ HUF/ Partnership Firm (Regd./ Non-regd.)/ AOP |
Business Entity, regd. as a body corporate. |
|
2 |
Works contract |
50% |
50% |
Krishi Kalyan Cess is proposed to be levied with effect from 1st June, 2016 on any or all the taxable services at the rate of 0.5% on the value of such taxable services. Credit of Krishi Kalyan Cess paid on input services shall be allowed to be used for payment of the proposed Cess on the service provided by a service provider.
One major benefit of such reverse/ joint charge mechanism, and expansion of its’ scope is that the Govt. is getting revenue from a significant portion of the service provided by small service providers. Earlier, they were enjoying full exemption at the end of the service providers. Now, although the service providers continue to enjoy such exemption, the service tax thereon is now being collected from the recipients of such services, subject to the other conditions.
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