Service Tax Basic Exemption

[HIMANSHU SHAH]

Dear Sir,

Receipts of Works Contract Service during the year = ₹ 30,00,000/-

Which of the following method should be used for calculating service tax liability

1. (30,00,000-10,00,000) x 40% x 12.36% = 98,880/- or

2. [(30,00,000 *40%) - 10,00,000 ] x 12.36% = 24,720/-

Kindly guide in this matter at earliest if this is first year of business.

Thanks.

[Deepak Aggarwal]

Dear Himanshu ji,

In my opinion, first method will work- (30,00,000-10,00,000) x 40% x 12.36% = 98,880/-.

Thanks

[Deepak Aggarwal]

Dear Himanshu ji,

Please ignore earlier reply. Correct position will be as per second method i.e. [(30,00,000 *40%) - 10,00,000 ] x 12.36% = 24,720/-. Reason is that works contract service is covered by valuation rules. Valuation rules specifies that only 40% will be taxable value in case of Works contracts. So, first taxable value will be calculated and then basic exemption will be deducted.

Hope it will clarifies.

Thanks

AI Summary

Works contract valuation: compute taxable proportion first, then apply basic exemption before service tax calculation.
Valuation rules for works contracts require computing the taxable value as 40% of gross receipts; the basic exemption must be deducted from that proportionate taxable value, and the applicable service tax rate is then applied to the resulting net taxable amount.