The Government of India (“GOI”) has released the draft Point of Taxation (for Services provided or Received in India) Rules, 2010 (“Draft Rules”) for public scrutiny, comments and proposals.
Purpose of the proposed draft rules:- To provide clarity in matters of levy and collection of service tax in cases of change of rate of service tax or imposition of service tax on new services and to To align payment of service tax with the Value Added Tax and Excise regimes for easier transition to Goods and services Tax.
Treatment of advances
- Service tax would be payable on the date of receipt of advance by the service provider for the provision of taxable services.
- Interest free refundable deposit would not attract service tax.
Treatment in case of change in rate or point of taxation:-
- The Draft Rules provide the point of taxation where there is change in rate of service tax during the period of rising of invoice, date of payment and providing of taxable service as summarized in diagrams given below. The following case studies indicate the point of taxation in cases where the provision of service, issuance of invoice, payment and change in rate take place in the order provided:
Point of Taxation in case 1 above : Date of invoice or Payment, whichever is earlier
Point of Taxation case 2 above: Date of invoice if payment is received within 30 days of raising of invoice, else date of payment
Point of Taxation case 3 above: Date of payment
Point of Taxation case 4 above: Date of payment or issuance of invoice whichever is earlier
- Change in tax rate would include withdrawal of exemption.
Treatment of new services:-No service tax would be payable on services made taxable for the first time in the following circumstances:
1. If invoice is issued and payment received before the service became taxable, to the extent of the amount mentioned in the invoice.
2. If the payment has been received and invoice has been issued within the period prescribed under rule 4A of the Service Tax Rules, 1994. The period prescribed is currently fourteen days from the date of completion of taxable service.
3. On provision of service before it became taxable.
Continuous supply of services:-
- The point of taxation for continuous supply of service, the consideration for which has been determined or is payable periodically, would be as follow (to be read in sequential order):
1. The date of payment prescribed in the contract irrespective of whether an invoice has been raised or any payment received by the service provider
2. If the payment is to be made on the completion of an event, the time of such completion of the event. 3. In the event that no date of payment is provided in the contract, each time the service provider receives the payment, or raises an invoice, whichever is earlier.
- No tax would be payable on payments received before the service becomes taxable.
Associated enterprise :-The point of taxation for associated enterprises, as defined in the Income Tax Act, 1961, would be the date on which the payment has been made, or the date of debit or credit in books of accounts, or issuance of debit or credit notes, whichever is earlier.
Royalties and similar payments :-The point of taxation for royalties and similar payments the consideration for which was not ascertainable at the time of provision of service but consideration flows subsequently would be at the time such payment is received or invoice issued, whichever is earlier.
