Sandeep Ahuja & Co.

Established in the year 1986, we are a leading chartered accountancy firm based in Delhi & NCR rendering comprehensive professional services which include statutory audit, internal audit, direct tax, transfer pricing, GST, bank audit, propriety audit, cost accounting, internal financial controls and risk advisory.

Saturday, February 6, 2016

Amendments and FAQs in Reverse Charge mechanism effective from 01.04.2015

As per the rule 2(1)(d) of Service Tax Rules,1994  as amended by Notification NO.7/2015-ST dated  01.03.2015 effective from 1st April, 2015 there are certain amendments in reverse charge mechanism. Under reverse charge mechanism now the rates are changed as well as responsibility of making the payment of service tax is also changed in few cases. New Services are made taxable for the first time and taxable through the route Reverse charge mechanism with effect from 01 April, 2015.
CBEC has clarified with Notification No 8/2015 dated 01-March-2015 that ancillary service like loading, unloading, packing, unpacking , transshipment, temporary storage etc. provided by GTA along with transport service are considered as composite service and abatement of 70% is allowed on these services.

Major Changes effective from 01.04.2015 and related FAQs are given hereunder:
1. Service provided by individual ,HUF, proprietary ,firm ,partnership firm to  Any Body Corporate registered as business entity located in taxable territory in respect of services provided or agreed  to be provided by way of SUPPLY OF MAN POWER for any purpose or security services.
S.No.
As per the Old Rules
As per the new rules
With effect from.
1.
Liability by Service provider(%)
Liability by Service Receiver(%)
Liability by Service Provider(%)
Liability by Service Receiver(%)
01-04-2015
25%
75%
0%
100%
     
Then, reverse charge mechanism is applicable as under.
Note - Body corporate  includes company, LLP, Cooperative Society  But firm,HUF, Trust are not included as under Body corporate.
Que : If Service provider is a body corporate and service receiver is individual /HUF/ proprietary firm/ partnership firm then Who will pay the service Tax?
Ans:   As per rule 2(1)d of service tax rule 1994, service provided by any individual, HUF, Partnership firm, Proprietary Firm, AOP, located in taxable territory to an Company Registered under Companies Act or Business Entity registered as body corporate located in Taxable territory. Then servicereceiver  have to pay the full amount of service tax under reverse charge mechanism.
But in this case ,service receiver is individual, so, this rule of reverse charge mechanism  does not apply and hence, The service provider i.e. body corporate is liable to pay full(100%) amount of service tax.
Que:  If service provider is body corporate and servicer receiver is body corporate then Who will pay theservice tax? 
Ans: Body corporate i.e. Service Receiver  is liable to pay  full(100%) amount of service tax under Reverse charge mechanism.
Que:  If service provider is individual /HUF/ proprietary firm ,partnership firm and service receiver is also a body corporate then Who will pay  service tax?
Ans: Body Corporate i.e. Servicer Receiver is liable to pay full (100%) amount of service tax under Reverse charge mechanism.
Que:  If service provider is individual /HUF/ proprietary firm ,partnership firm and service receiver is also individual/HUF/ proprietary firm ,partnership firm then who will pay service tax?
Ans:  Individual /HUF/ proprietary firm ,partnership firm i.e. Service  provider is liable to pay full(100%) amount of service tax in this case as reverse charge mechanism is applicable only when service receiver is body corporate.
Note-Supply of man power means supply of manpower, temporarily or otherwise, to another person to work under his superintendence or control.
1)      Service which are taxable for the first time and taxable through the route Reverse charge mechanism with effect from 01 April,2015 is as follows.
a)      Service by Mutual Fund Agent or distributer to mutual Fund or Assets Management Company.
b)      Service by Selling or marketing agent of lottery ticket to a lottery distributor or selling agent.
c)       Service provided by a person involving an aggregator in any manner is taxable.

Note-Aggregator means a person who owns and manages a web based software application and by means of the application and communication device ,enables a potential customer to connect with persons providing service of a particular kind under the brand name or trade name of the aggregator.
The details  are as under.
Description Services
Liability by service provider(%)
Liability by service Receiver(%)
With effect from
Services of mutual Fund agent or distributor to a mutual fund or asset management Company.
                 0%
               100%
01-04-2015
Services by selling or marketing agent of lottery tickets to lottery distributor or selling agent
                 0%
              100%
01-04-2015
Services involving an aggregator in any manner
                0%
             100%
01-04-2015

Notification on Goods Transport agency.

 CBEC has clarified with Notification No 8/2015 dated 01-March-2015 that ancillary service like loading, unloading, packing, unpacking , transshipment, temporary storage etc. provided by GTA along with transport service are considered as composite service and abatement of 70% is allowed on these services.
Description of Services
As per old Rules
As per New rules
With Effect From
Abatement Rate
Abatement Rate
Goods Transport Agency Services
75%
70%
01-Apr-2015
  
Full service tax shall be paid by service receiver after considering abatement. It means on the value of 30%.
 Reverse charge mechanism in good transport agency service is applicable when taxable service provided or agree to be provided by GTA in respect of transport of goods by road where the person liable to pay freight is

a)      Any factory registered under or governed by the Factories Act, 1948 (63 of 1948).
b)      Any society registered under the Societies Registration Act, 1860 (21 of 1860) or under any other law for the time being in force in any part of India.
c)       Any co-operative society established by or under any law.
d)      Any dealer of excisable goods, who is registered under the Central Excise Act, 1944 (1 of 1944) or the rules made there under.
e)      Anybody corporate established, by or under any law (Company).
f)       Any partnership firm whether registered or not under any law including association of persons.

    When individual or HUF is availing GTA service and paying freight, they are not liable to pay service tax under reverse charge mechanism and good transport agency is liable to pay service tax on freight by charging in bill. 
     Contributed by : Roshan Paudel ( CA Finalist - Article Assistant at Sandeep Ahuja & Co.) 


1 comment:

  1. Great information and advise, thanks for sharing the post. Really appreciate the work of author.
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