6.1 Point of Taxation Rules, 2011 have been framed vide notification 18/2011-ST and made effective from 01.04.2011. These rules determine the point in time when the services shall be deemed to be provided. The general rule will be that the time of provision of service will be the earliest of the following dates:

i. Date on which service is provided or to be provided

ii. Date of invoice

iii. Date of payment

6.2 Consequential changes have also been made in the Service Tax Rules, 1994 to alter the payment of service tax from receipt of payment to provision of service and also to permit adjustment of tax when service is not finally provided.

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  1. Pawan says:

    on 31st march amount show in service tax payable a/c should be deposit in april month because this change is asked that no payble amount in show our balance sheet

  2. MUKUL GUPTA says:

    2. Payment of Service Tax on accrual basis – a harsh provision for Professionals
    As per ‘Point of Taxation Rules, 2011’, effective from 1st April, 2011 service tax on taxable services have been made payable on accrual basis instead of realization basis, as has been the practice since inception of Service Tax.
    This change in the point of taxation shall be very harsh and burdensome for the professionals like Chartered Accountants/Advocates/Legal Consultants. Problems in the case of professionals are peculiar which are stated as under:-
    2.1 In the case of professionals, particularly having small and medium size entities, fees for taxable services are not fixed/settled before undertaking the assignment. After completing the assignment, bills are raised by the professionals and the client on receipt of bills, begins bargaining to settle the fees. Due to the uncertainty of the recovery of fees against the bills raised, accounts are being maintained by the professionals on ‘Cash Basis’. For Professionals, the income earned is the amount what has been realized against the bill and not the amount for which bill has been raised. Due to this well known phenomenon, professionals maintained their accounts on cash basis which has widely been accepted including Income Tax Department for determination of liability for Income Tax. If professionals are made to deposit Service Tax on the basis of bills raised by them, Service Tax paid shall always be higher than the amount actually collected from the client. It will result into significant financial loss to the professionals thereby adversely affecting their income. Intention of the Govt. is to collect the Service Tax from the Service Provider what they have realized from the Service Receiver. Therefore, it is requested that for professionals like Chartered Accountant/Advocate/Legal Consultants be allowed to pay the Service Tax according to a point it has been realized as has hitherto been followed.

    2.2 Professional does not get the payment immediately on raising the bill. There is wide time gap in providing the services and actual receipt of payment against the bills raised for services so provided. One year gap is common and in certain cases it may be two or three years. If professionals are required to deposit the Service Tax, at the point of time bills are raised, they will have no fund for deposit of such tax. How the professional can be assumed to make the payment of service-tax out of his pocket. Professionals have limited financial resources and they cannot afford to block their scarce funds by way of deposit of Service Tax not collected from the client i.e Service Receiver. This is against the principles of Indirect Taxation.

    2.3 Professionals are accounting for their professional receipts on ‘Cash Basis’ and accordingly ‘Income from Profession’ is being disclosed and also being so assessed regularly under Income Tax Act. Professionals normally do not able to realize whole of the professional charges agreed or invoiced from the clients. Till now the Service Tax collected and its onward deposit are equal amount resulting Nil balance. As such this transaction does not form the part of the Income & Expenditure or Balance Sheet. With the change in the Rules for ‘Point of Taxation’, Service Tax paid shall be higher than the Service Tax collected and the balance amount has to be charged to the Income-Tax Expenditure Account. It shall have the affect of reducing the income. This treatment is against the principle of consistency in the method of accounting. If one set of accounting is adopted, it should be uniformly adopted for all transactions. Payment of Service Tax on accrual basis violates the basic accounting principles of uniformity/consistency/ where ‘Cash basis’ of method of accounting is adopted.

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September 2021