In service tax it is important to determine the rate of service tax, value of taxable service and the rate of exchange, if any. These three elements shall be depended on the time when the service has been provided or agreed to be provided. In these regard point of taxation Rules are framed.
“Point of taxation” means the point in time when a service shall be deemed to have been provided. It is relevant to determine the due date of payment of tax.
Point of taxation Rules are given below:
|Rule No.||Rule heading|
|Rule 2A||Determination of date of payment|
|Rule 3||Determination of Point of Taxation|
|Rule 4||Determination of Point of taxation in case of change in effective rate of tax|
|Rule 5||Payment of tax in case of new service|
|Rule 7||Determination of point of taxation in case of reverse charge mechanism|
|Rule 8||Determination of point of taxation in case of copyrights, etc|
|Rule 8A||Determination of point of taxation in other cases|
It is important to determine the date of payment since it is used to determine the date of provision of service. The date of payment shall be earliest of following:
- Date of which payment is entered in books of accounts
- Date on which payment is credited to the bank of accounts
If the there is change in service tax rates or a service is taxed for first time, in between the above two points a) & b), then date of payment shall be date of credit in the bank account provided the credit in the bank account is made after four working days from the day of change in effective rate of tax or service is taxed for first time.
Point of taxation shall be earlier of following:
- The date of issue of invoice if the invoice is issued within 30 days of completion of service.
- The date of completion of service if the invoice is not issued within 30 days of completion of service.
- The date of payment determined as per Rule 2A
- Each advance is regarded as separate advance
- Small advance upto Rs. 1000 may be ignored.
- Completion of service covers all auxiliary service
If there is a change in service tax rates then point of taxation shall be determined as follows:
Case 1: If the service has been provided before the change in effective rate of tax
|Condition||Point of Taxation|
|Invoice is issued after the change & payment received after the change||Earliest of, date of payment or date of issue of invoice|
|Invoice is issued prior the change & payment received after the change||Date of issuing of invoice|
|Invoice is issued after the change & payment received before the change||Date of payment|
Case 2: If the service has been provided after the change in effective rate of tax
|Condition||Point of Taxation|
|Invoice is issued before the change & payment received after the change||Date of payment|
|Invoice is issued before the change & payment received before the change||Earliest of, date of payment or date of issue of invoice|
|Invoice is issued after the change & payment received before the change||Date of issuing of invoice|
Where a service is taxed for first time then:
- No tax shall be payable to the extent the invoice has been issued and the payment received against such invoice before such service become taxable.
- No tax shall be payable if the payment has been received before the service becomes taxable and invoice has been issued within 14 days of the date when the service is taxed for the first time.
Rule 5 have been amended by Budget 2016 to clarify that this rule shall apply mutatis mutandis in case of new levy of services and new levy or tax shall be payable on all the cases other than specified in said rule.
In case of reverse charge mechanism, the point of taxation shall be earliest of following:
- The payment date or
- The first day that occurs immediately after a period of 3 months from the date of invoice.
In case of royalties and payment related to copyrights, trademark, designs or patents, where-
- Whole amount of the consideration for the provision of service is not ascertainable at the time when service was performed, and
- Subsequently, the use or the benefit of these services by a person other than the provider gives rise to any payment consideration,
the service shall be treated as having been provided each time when-
- A payment in respect of such use or the benefit is received by the provider in respect thereof
- An invoice is issued by the provider
Whichever is earlier.
Please comment for any query on Point of taxation of rules.