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CA Srikant Agarwal

We know that the rate of abatement and applicability of RCM (Reverse Charge Mechanism) play an important role while making payment of service tax to vendor and payment of service tax under RCM. In the article we have compiled all the provisions and notifications applicable for Abatement on service tax and Reverse charge mechanism. It would be beneficial for all those who are dealing with processing of vendor bills in relation to service tax and is liable to pay service tax under RCM.

The provisions relating to abatement is tabulated below:

In case abatement is applicable then the service tax is not payable on the whole amount of bill. Say for example in case of GTA (goods Transport Agency) the taxable rate is 25% (i.e 75% abatement is allowed). So in such a case if GTA bill is of Rs 1,00,000 then the applicable service tax would be 12.36% of (25% of 1,00,000) i.e Rs 3,090.

Abatement Rate chart under Service tax
S.N
Service
Taxable
Effective rate as on date
Condition for service provider
1
Goods Transport Agency (GTA) (any person who pays or is liable to pay freight either himself or through his agent for the transportation of such goods by road in a goods carriage)
Provided that when such person is located in a non-taxable territory, the provider of such service shall be liable to pay service tax.
25%
3.090%
No cenvat credit availed
2
Transport of goods by rail
30%
3.708%
Nil
3
Transport of passengers by rail
30%
3.708%
Nil
4
Transport of goods in a vessel from one port in India to another
50%
6.180%
No cenvat credit availed
5
Transport of passengers by air
40%
4.944%
Cenvat credit on inputs and CG is not availed
6
Supply of food or any other article of human consumption or any drink, in a restaurant / other premises
40%
4.944%
Cenvat credit of goods in Ch. 1 to 22 not taken.
Further, Rule 6 reversal  required
7
Supply of food in convention centre, pandal, shamiana etc
70%
8.652%
Cenvat credit of goods in Ch. 1 to 22 not taken.
Further, Rule 6 reversal  required
8
Accommodation in hotels, inns etc
60%
7.416%
Cenvat credit on inputs and CG is not availed
9
Renting of any motor vehicle designed to carry passengers
40%
4.944%
No cenvat credit availed
10
Package tour
25%
3.090%
No cenvat credit availed.
Bill incl. of charges for tour
11
Booking accommodation
10%
1.236%
 -No cenvat credit availed
– Bill indicates so
– NA if invoice only for service charges
12
Services other than 11 and 12 provided in relation to tour
40%
4.944%
 -No cenvat credit availed
– Invoice is for gross amount
13
Financial leasing services including hire purchase
10%
1.236%
Nil
14
Services in relation to chit
70%
8.652%
No cenvat credit availed
15
Construction of a complex, building, civil structure or a part thereof, intended for a sale to a buyer, wholly or partly, except where entire consideration is received after issuance of completion certificate by the competent authority,-
(a) for a residential unit satisfying both the following conditions,
namely:–
(i) the carpet area of the unit is less than 2000 square feet; and
(ii) the amount charged for the unit is less than rupees one crore;
(b) for other than the (a) above
a) 25%
b) 30%
a) 3.09%
b) 3.708%
(i) CENVAT credit on inputs used for providing the taxable service has not been taken under the provisions of the CENVAT Credit Rules, 2004;
(ii) The value of land is included in the amount charged from the service receiver.
16
Works contracts entered into for execution of original works
40%
4.944%
Cenvat credit on inputs not availed
17
Works contracts entered into for maintenance or repair or reconditioning or restoration or servicing of any goods
70%
8.652%
Cenvat credit on inputs not availed
18
For other works contracts, not covered under sr. no. 16 and 17 , including maintenance, repair, completion and finishing services such as glazing, plastering, floor and wall tiling, installation of electrical fittings of an immovable property
60%
7.416%
Cenvat credit on inputs not availed

 The provisions relating to RCM (Reverse Charge Mechanism) is tabulated below:

In case of Reverse Charge mechanism the service receiver is either required to pay the whole amount of service tax or part of the amount of service tax. Say for example in case of works contract the service recipient is required to pay 50% of the amount of service tax. Again in case of Original works the taxable portion is 40% only. So if the total amount of bill before service tax is Rs 1,00,000 then the service recipient is required to pay Rs 1,00,000*12.36%*40%*50% = Rs 2,472 as service tax under RCM and Rs 2,472 is required to be paid by vendor.

RATES OF SERVICE TAX FOR SERVICE PROVIDER AND RECEIVER UNDER REVERSE CHARGE MECHANISM

S.N

Service

Service Recipient

% of Service tax payable

Provider

Recipient

1

Provided by person who is located in non-taxable territory and received by any person located in taxable territory (In case of foreign services and services from J&K) Any person

Nil

100%

2

Works contract services by individual, HUF, firm or AOP Body corporate

50%

50%

3

Manpower supply for any purposes or security services by individual, HUF, firm or AOP Body corporate

25%

75%

4

Renting of vehicle to any person who is not engaged in the similar line of business to carry passenger by individual, HUF, firm or AOP
– With abatement
– Without abatement
Body corporate

Nil (With Abatement)

60% (Without Abatement)

100% (With Abatement)

40% (Without Abatement)

5

Support services by Government and Local Authority (excluding renting and 66D (a) (i) to (iii) Business Entity

Nil

100%

6

Provided or agreed to be provided by a director of a company to the said company (w.e.f. 7 August 2012 vide Not. 45/2012) Body corporate

Nil

100%

7

Individual advocate Business entity

Nil

100%

8

Arbitral Tribunal Business entity

Nil

100%

9

Sponsorship Body corporate or Partnership Firm

Nil

100%

10

GTA (Goods Transport Agency) Company, P. Firm, Factory, Society, excise registered assessee

Nil

100%

11

Insurance agent to insurance companies Insurance business

Nil

100%

Download Reverse Charge Mechanism and Abatement Rate Chart under Service tax

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Author Bio

I am a working professional having more than 13 years of experience in field of Income Tax, TDS, VAT, Sales tax, GST and accounting. Can be contacted at [email protected] View Full Profile

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56 Comments

  1. diya patel says:

    hello sir
    we are enter into work contact like
    (comprehensive maintenance charges)
    contractors provide invoice with below taxes
    15 % vat
    15 % service tax
    reason????

  2. rohit kasana says:

    dear sir, pls tell if we are a manufacturing company & we are a service receiver then we can take cenvat credit……… ????

  3. tengmera g momin says:

    Sir I joined RCM & buy goods ie soap Rs 22/- for Rs. 21/- which is product price is only Rs 12/- If I buy that soap Rs 21 I have to sell it to my my customers then where is my profits? so please show me catalog

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