Service tax reverse charge

As per Notification No. 30/2012 – ST dated 20.06.2012 : Manpower supply services -The service provider has to pay service tax to the extent of 25% of the total taxable value. The service receiver is liable to pay tax to the extent of 75%  of the total taxable value.

w.e.f. 01.04.2015, the liability of service recipient to pay service tax under reverse charge mechanism is increased to 100% vide notification no. 07/2015-ST, dated 01.03.2015.

ST rate is increased from  12.36% to 14% w.e.f 1.6.2015. Further  Swachh  Bharat Cess of 0.5% being levied w.e.f 15.11.2015 and thereby making the effective rate of service tax as 14.5%.

When there is a change in tax rate , the point of taxation shall be decided in accordance with Rule 4.

As per Rule 4 of Point of taxation Rules, 2011 if any of the two events occurred prior to rate change then the old rate will be applicable and if any of the two event occurred after the date of rate change then new rate will be applicable. Following  are the three events:

1. Service provided
2. Invoice issued
3. Payment received

Thus in the instant case as the services are provided prior to rate change date and invoice is issued before the rate change date, so the applicable rate is 12.36%. The service provider is required to pay service tax on 25% of the taxable value (i.e. ST @ 3.09% of the total taxable value). Service recipient is required to pay service tax on 75% of the taxable value (i.e. ST @ 9.27% of the total taxable value).