Service tax return

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mohsin (Querist)
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24 October 2013 Dear experts

i have doubt in filing service tax return for works contract...below the example

sales 100000
vat on 75% 4500
service tax on 40%
by service provider
@ 6.18% 2472

my 1st query is value of 60 sales is called abatement?

and 2nd query is format of service tax return dont accept percentage of 6.18 while filing it says..
Following issues have been found in your return :
Tax Rate entered 6 in Provider Section in Payable Sheet is not Valid.

please help me regarding this

CA Vikas Acharya

CA Vikas Acharya (Expert)
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26 October 2013 yes 60% is called abatement

in case of work contract
rate are as follows:
40% taxable
12.36% of 40% is 4.944
hence this 6.18 is not corect
also if reverse charge applicable in your case it could be 50-50% and then it comes to 2.472

next: in return you have to write value equal to 100% in gross
then abated value 60%

and then on balance 40% tax rate
12% 2% and 1%.... which will come to 4.944

mohsin

mohsin (Querist)
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26 October 2013 thank you somuch

mohsin

mohsin (Querist)
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26 October 2013
as per latest notification on works contract if we are charging 12.36 to the client

the service receiver he has to pay 6.18
and the service provider balance 6.18 that comes to total 12.36
now question is here since receivable paying half percentage of the tax, we charges to the receiver only 6.18 and same we are remittance to the department

please guide this regards

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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25 July 2025 Got it, your question is about the **works contract service tax calculation and return filing**, especially regarding the 6.18% tax rate and how to report it.

Here’s the breakdown and clarifications:

### 1. About the 60% Abatement:

* Yes, for works contract services, **60% of the gross value is abated** (not taxed).
* Only 40% of the contract value is considered taxable under service tax.

### 2. Service Tax Rate:

* The effective tax rate on the taxable portion (40%) is **12.36%** (includes cesses).
* So, tax = 40% of contract value × 12.36% = **4.944% of gross contract value**.

### 3. Reverse Charge Mechanism (RCM) split:

* In some cases, **service provider pays 6.18%** and **service receiver pays 6.18%**, totaling 12.36%.
* This means each party pays half the total tax under RCM.

### 4. On Return Filing Issue (6.18% not accepted):

* The service tax return (ST-3) expects you to enter the **full tax rate (12.36%) on the taxable value** (which is 40% of the gross contract value).
* You do **NOT enter 6.18% as tax rate** because the return form does not allow half rates.
* Instead, enter the taxable value (40% of contract value), and the applicable tax rate (12% plus applicable cesses) which will automatically calculate the tax amount.

### 5. How to report in the return:

* **Gross value:** 100% of contract value
* **Abatement:** 60% (this is the non-taxable part)
* **Taxable value:** 40% of contract value
* **Tax rate:** 12.36% on the taxable value
* For RCM, separately mention the tax paid by service provider and service receiver in appropriate columns.

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### Summary for your case:

* Don’t enter 6.18% as tax rate in ST-3 form; enter 12.36% on taxable value (40% of gross).
* For RCM payments, show tax paid by receiver in the reverse charge section and tax paid by provider in the provider section.
* Your invoice can mention 6.18% charged to receiver and 6.18% charged to provider, but in returns, report full 12.36% on taxable value.

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If you want, I can help you draft the proper entries in the service tax return form based on this. Would you like that?

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