TaxTMI 
TaxTMI 
TaxTMI 
Introduction
Prior to 01.04.2011 service tax was deposited to the credit of Government in the month following the month in which payment was received. In other words service tax was payable on receipt basis. Thereafter, in 2011 in order to achieve a closer fit between the present service tax regime and its predecessor GST regime a need of shift from cash basis to accrual basis was felt and the same was implemented.
Existing Provision under Service Tax
In the present law the point of taxation depends upon the three factors viz. date of completion of service, date of payment of service tax and the date of issue of invoice.
- General Rule including continuous supply of services
Situation | Point of Taxation |
Advances received | Date of receipt of such advance |
Invoice issued within stipulated period, and –
| Date of issue of invoice Date of receipt to the extent of amount received Date of issue of invoice |
Invoice not issued within stipulated period, and –
| Date of completion of provision of service Date of receipt to the extent of amount received Date of completion of service |
- Export of services – Export of services are not liable to be taxed, hence point of taxation for export of services have no relevance.
- Persons liable to pay tax under reverse charge – The point of taxation is the date on which payment is made to the service providers. However, the payment is required to be made within three months from the date of invoice. If payment is not made within three months then point of taxation shall be the date immediately following the said period of three months.
- Point of taxation for Associated Enterprises – In case of associated enterprises where the person providing the service is located outside India, the point of taxation shall be the date of debit in the books of accounts of the service receiver or the date of payment, whichever is earlier.
- Special provision for Individuals/partnership firms/LLP – Where aggregate value of taxable service provided by the individuals and partnership firms from one or more premises is ₹ 50 lakhs or less in the previous financial year, the service provider has the option to pay service tax on cash basis on the taxable services upto the total of ₹ 50 lakhs in the current financial year
- Point of taxation in case of change in effective rate of tax -
Date of completion of service | Date of issue of Invoice | Date of Payment | Point of taxation |
Before | Before | After | Date of issue of Invoice |
Before | After | Before | Date of Payment |
Before | After | After | Date of issue of invoice or payment whichever is earlier |
After | Before | After | Date of payment |
After | After | Before | Date of issue of invoice |
After | Before | Before | Date of issue of invoice or date of payment, whichever is earlier |
- Point of taxation in case of trademark, copyright, design or patent
The point of taxation in this situation is date of issue of invoice or date of receipt of payment, whichever is earlier.
- Point of taxation in case of new services – Where a service is taxed for the first time, then-
- No tax is payable to the extent the invoice has been issued and the payment received against such invoice before such service became taxable,
- No tax shall be payable if the payment has been received before the service becomes taxable and invoice has been issued within fourteen days of date when the service is taxed for the first time.
Proposal under GST
In case of GST the point of taxation is proposed to shift on “supply of goods” and “supply of services”. Therefore, the point of taxation in post-GST regime will lie on the basis of supply of goods and supply of services. However, this article is emphasizing the point of taxation on the overlapping transactions to provide harmony in pre-GST and post-GST regime.
Overlapping transactions
It is proposed to consider only two factors for identifying the point of taxation in post-GST regime – Completion of service, and Issue of Invoice. The taxability will be expected to be determined as under (service is taxable in both pre-GST and post-GST regime):-
Completion of Service | Raising of Invoice | Point of Taxation |
Pre-GST | Pre-GST | Pre-GST |
Post-GST | Pre-GST | Post-GST |
Pre-GST | Post-GST | Post-GST |
In case the service is not taxable in pre-GST regime and taxable in Post-GST regime or vice-versa, the possible point of taxation event is the completion of provision of service irrespective of the date of issue of invoice or date of payment.
In case of continuing services, the point of taxation in post-GST is expected to be on similar lines as in the current regime. However, these could option of raising separate invoices for the pre-GST regime and post-GST regime.
The GST proposals are just for your reference. These are yet to be finalised on public domain. These could be possibility of some modifications in the above proposals. Further this does not constitutes our professional advice.