Proposal of 10 Services under Reverse Charge Mechanism in Service Tax Law – Are these TDS provisions in Indirect Tax Law?

CA Gautam Joshi

Finance Minister, since last two budgets, is planning to cover more and more TDS applicability, strict compliance of TDS provisions and heavy penal clauses for non-compliance under direct tax law. In fact, TDS is a far more easy and early collection of tax both for administration and compliance. However, every time an easy collection of tax mechanisms (like TDS) are introduced, it forces us to think if government fail to collect taxes from the person who is suppose to bare it or is government looking to emphasize on levy of taxes only and let collection be a burden on public who never intended to be the payer of tax?

Easy collection tax mechanisms are not just in direct tax but in indirect tax as well be it in the name of reverse charge mechanism. Currently, there are seven heads (Rule 2(1)(d) of Service Tax Rules, 1994) under which tax is collected on reverse charge mechanism i.e. a service receiver is required to pay service tax and not the service provider. Notification No. 15/2012 dated 17/03/2012 has proposed to add following more service heads under reverse charge mechanism as follows while continuing earlier service heads:



Description of a service

% of service tax payable by the service provider

% of service tax payable by the service Receiver



Insurance service by insurance agent



Continue to taxed under reverse charge


Transportation of goods by road (GTA) Service



Continue to taxed under reverse charge


Sponsorship Service



Continue to taxed under reverse charge


Arbitral Tribunal Service



Newly added


Advocate Services by Individuals



Newly added


Support Service by Government or Local Authority



Newly added


(a)     Renting or hiring any motor vehicle designed to carry passenger on abated value.

(b)    Renting or hiring any motor vehicle designed to carry passenger on non abated value.





Newly added


Supply of Manpower Service


75 %

Newly added


Works Contract Service



Newly added


Import of Services



Continue to taxed under reverse charge

If one observes the above list closely most of the services are also covered in TDS provisions under Direct Tax law. Now the said services are also covered under reverse charge mechanism in Indirect Tax law and service receiver will have added responsibility of depositing TDS plus Service Tax of Service providers. This will seriously hit the funds of service receivers.

The proposed amendment will be on the floor once both the houses accept the proposal. There are no clarifications regarding filing of registration, returns, allowing credits to service providers of the service tax paid by service receivers, interest or penal clauses for the default etc. for these revised reverse charge mechanism concept.

As observed in TDS provisions of Salary, an employee and employer both are under tremendous pain in compliance of the TDS provisions. An employer incurs huge costs in terms of software, legal advices etc. for timely compliance of TDS provision, whereas an employee has to endlessly follow employer starting from depositing documents of investments, Form 16/16A or in reconciling the Form 16/16A with 26AS statement online. Number of assesses are suffering from non-allowance of TDS credit because either tax has not been paid by employer or returns are not filed in time and eventually 26AS statement do not show the correct TDS deducted during the previous year.

Will it be the same case with reverse charge mechanism under service tax? Only time can tell us.

One can always doubt the tax collection by reverse charge mechanism as the actual burden of paying the indirect tax gets shifted to actual consumer/buyer/service receiver where the indirect tax is paid by person other than on whom it is levied and not by the consumer directly.

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0 responses to “Proposed Services under Reverse Charge Mechanism – Are these TDS provisions?”

  1. Amol Sharma says:

    Under which Head Of Account we should deposit Reverse charge Service Tax ?

  2. chandru says:


    Please clarify TDS applicablility?

    Service provider pays 25% ST, service receiver pays 75% ST, TDS is applicable only on invoice value plus 25% ST or have to deduct TDS on 75% ST also, where as 75% ST directly remitting to govt account, not paid as a income to service provider.

  3. GAUTAM JOSHI says:

    Dear Rahul, Service Provider is supposed to provide bill with service tax he is responsible to pay and not for the service tax liabiity shifted to service receiver.
    You don’t need to register every time now as common code for service tax payment has been made effective from July 12.

  4. Rahul says:

    Please clarify how the invoice pattern wil be?

    1) Invoice will be having full 12% service charged out of that 25% / 50% of the amount will be paid to service provider as the case may be and remaining will be paid to Govt.Service tax amount. OR Invoice will be having only 25% or 50% of the total 12% service tax which will be paid to service provider & the remaining 75% or 50% as the case may be calculated & paid to Govt.Service tax A/c by a receiptant.
    Whether receiver has to opt registrations for the different services receiving or not. Thanks

  5. Rohit Singh says:


    I have an doubt if the person cover under Reverse Charge Mechanism, he has the libality to pay 70% service tax by own and the rest is paid by service reciver, however the person who pay 70% service they will charge the 100% service tax i.e. 70%+30%, so in that case the service reciver is liable to pay service tax to Government or Not.


    Rohit Singh

  6. R MUTHURAJ says:

    Dear Sir,

    I have a doubt in respect of the above notification. The Notification No. 15/2012 dated 17/03/2012 will become effective only after when the Finance Bill become Finance Act.  Recently on 8th May the Finance bill has been proposed and approved in Lok Sabha but yet pending with Rajya Sabha. Will it become effective from the date of approval from Rajya Sabha or from what date? Kindly clarify…

  7. Amit Mundhra says:

    Hi, these provisions are really like the TDS provisions in indirect taxes with some differences. In the direct taxes, the liability to pay tax on income is still with the person receiving the income. In the recent changes in TDS, when the person receiving the income has paid tax completely then the person liable to deduct tax on that income cannot be held as assessee in default.

    But here is the catch in the Service Tax. In this reverse charge mechanism, the liability to pay tax on such services transfers to the receiver of service as if these services are provided by them. This will have huge impact on companies and body corporates receiving these kinds of services. If they forget to make adjustment in their contracts relating to these services, they will have to shell out whole amount of service tax from their own pockets.

  8. GAUTAM JOSHI says:

    Dear Akhilesh, Though it is not termed as TDS but if you try to see, TDS is tax deducted at source, payment of taxes is shifted to person other than on whom the tax is levied and here the SOURCE is service receiver who pay fees or charges to service provider against services provided. As rightly said by you, it is easier for government to catch corporates for collection of taxes and under TDS mechanism the purpose of the government is easy and early collection only.

  9. CA Akhilesh Narayna says:

    No this is not the TDS. It is only shifting of tax payment liability on service receiver. It is easyfor governemt to catch corporates due to non compliance instead of individuals. This will also increase revenue since no small service provider exemption will be available to service receiver. He has to pay tax every rupee of service

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