Before proceeding onto the areas wherein the change in rate of service tax will have its effect, let us have a brief on the Finance Bill 2015 which proposed for the said changes in regards to the subject matter. Clause 106 of the Finance Bill, 2015 and paragraph 3 of JS (TRU-II)D.O.F.No.334/5/2015-TRU, New Delhi, May 19, 2015. Letter is summarised below for the ease of understanding:-

*The rate of Service Tax is being increased from 12.36% to 14%. The ‘Education Cess’ and ‘Secondary and Higher Education Cess’ shall be subsumed in the revised rate of Service Tax. Thus, the effective increase in Service Tax rate will be from the existing rate of 12.36% (inclusive of cesses) to 14% (subsuming the cesses).

*It would be pertinent to mark the phrase “subsuming the cesses” in the aforesaid point. In this regards, it has been proposed to cease the effect of levy of ‘Education Cess’ and ‘Secondary and Higher Education Cess’ on taxable services introduced under sections 95 of the Finance Act, 2004 and 140 of the Finance Act, 2007, from a date to be notified by the Government.

*The new Service Tax rate shall come into effect from a date to be notified by the Central Government after the enactment of the Finance Bill, 2015.

In this connection please note, The Finance Bill, 2015, has received the assent of the Hon’ble President and has been notified vide Notification No. 14/2015-ST dated 19-05-2015 as 1st June, 2015 as the date on which the below mentioned provisions will come into effect. It would hence be significant to note the following for the ease of trade & industry:

# Determination of Point of Taxation due to ‘Change in Effective Rate of Tax’.

For a service to be provided or agreed to be provided for a consideration and its point of taxation, three main ingredients i.e. provision of taxable service, raising of invoice and receipt of payment are significant. Service provided or agreed to be provided cannot per-se be considered as taxable service if there is no consideration. Consideration is known only if invoice is raised or payment is made.

Case I: In terms with Section 67A of the Finance Act, 1994 services where there is no confusion in time of provision of service, receipt of payment and raising on invoice, rate of service tax will be as applicable at the time when taxable service has been provided or agreed to be provided.

Case II: However, in case of complex situations, where it is not possible to determine the time, when the taxable service has been provided or agreed to be provided, point of taxation would be determined as per Rule 4 of Point of Taxation Rules, 2011 which has been summarised here-in-below for ease of reference:

Serial No. Service Provided Invoice




Point of Taxation Rule Rate of service Tax
1 Service Provided before the change of Rate After After 4(a)(i) 14%
2 Before After 4(a)(ii) 12.36%
3 After Before 4(a)(iii) 12.36%
4 Service Provided after the change of Rate Before After 4(b)(i) 14%
5 Before Before 4(b)(ii) 12.36%
6 After Before 4(b)(iii) 14%

Now, the question of the hour would be what should an assessee do to avail the benefits of the beneficial tax rate within the four corners of law?

It would be favourable on the part of the assesse to adhere to either of the conditions of issue of invoice or payments before 01-06-2015 (in respect of the services provided before the change of rate) so as to pay tax @ 12.36% instead of 14%.

On the other hand, it would be beneficial to adhere to both the conditions of invoice & payment before 01-06-2015 (in respect of the services provided after the change of rate) so as to fall within the ambit of lower %age of tax.

#Determination of Point of Taxation in case of Reverse Charge Mechanism

Notwithstanding any thing contained in the POT rules, the POT in case of RCM is the date of payment. However, with effect from 01-10-2014 the proviso inserted vide Finance Act, 2014 states that if said payment is not made within 3 months from the date of invoice, the point of taxation shall be the date immediately following the said period of three month.

Accordingly, it can be inferred that for the invoices that are outstanding as on date with the assesses should be paid within this month so as to attract tax @ 12.36%.

# Rates to be revised proportionately in case of certain services.

In respect of some services like money changing service, service provided by air travel agent, insurance service and service provided by lottery distributor and selling agent, the service provider has been allowed to pay service tax at an alternative rate subject to the conditions as prescribed under rules 6(7), 6(7A), 6(7B) and 6(7C) of the Service Tax Rules, 1994. Consequent to the upward revision in Service Tax rate, the said alternative rates shall also be revised proportionately.

Further, amendments to this effect have been made vide Notification No. 15/2015-ST dated 19-05-2015 in the Service Tax Rules which will also come into effect from 1st June, 2015. The revised tax rates vide Notification No. 05/2015-ST 1st March 2015 Entry at Sl. No. 2(a)(e)(ii) has been summarised as follows:

STR 1994 Service Description Earlier Revised
Rule 6(7) Air Travel Agent Domestic 0.6% of Basic Fare 0.7% of Basic Fare
International 1.2% of Basic Fare 1.4% of Basic Fare
Rule 6(7A) Life Insurance Business 1st Year 3% of Premium 3.5% of Premium
Subsequent Year 1.5% of Premium 1.75% of Premium
Rule 6(7B) Money Changing Upto 100000 (0.12% or 30) – higher (0.14% or 35) – higher
Next 900000 120 + .06%*(TV-100000) 140 + .07%*(TV-100000)
Exceeding 100000 660 + 0.012%*(TV-1000000) – Lower 770 + 0.014%*(TV-1000000) – Lower
Rule 6(7C) Lottery Business Payout < 80% 7000 per 1000000 8200 per 1000000
Payout > 80% 11000 per 1000000 12800 per 1000000

 # Effective date for Swachh Bharat Cess not being notified at present.

An enabling provision has been incorporated in the Finance Act, 2015 vide section 117 to impose a Swachh Bharat Cess on all or any of the taxable services at a rate not exceeding 2% on the value of such taxable services. This cess shall be levied on such services at such rate from such date as may be notified by the Central Government. The date shall be notified soon.

Aditya Singhania- Nischal Agarwal

Disclaimer: This article is the property of the author. No one shall use this article for commercial purposes, without the permission of the author. The author shall not be responsible or liable for anything done or omitted to be done on the basis of this article.

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0 responses to “Pro-founding Impact of change in effective rate of SERVICE TAX”

  1. renuka says:

    company needs to pay service tax @14% as per the point of taxation 4a(i)…………

  2. Amol Malu says:

    Dear Sir,

    as contained in table 1 Where service is provided before rate change but invoice & payment of same is made after rate change effective date then service tax rate is 14%. In RCM situation is same & Further Point of taxation in case of RCM Is payment date.

    Should we pay service tax @12.36% or @14%.

    Pl suggest.

  3. Aditya Singhania says:

    Dear Amol sir,

    Since the due date 5th (if AC/DC allows) or 6th(electronic payment) is for the month of May during which the rate of Service tax is 12.36%. Accordingly, service receipient in respect of which POT falls in the month of May needs to discharged @12.36% on 5/6th June.

  4. Amol Malu says:

    Dear Sir,

    thank you for detailed analysis.
    But my question While paying service tax under RCM on 5/6th June 2015
    Is company needs to pay service tax @ 14% or 12.36%…?

  5. CA. Saurabh says:

    Very good analysis. Appreciate it.

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