Aplicability and liability of service tax

[Anand Barpute]

Chartered accountants or any other service provider is not aware on the first day of financial year whether he is going to cross rs. 10 lac receipt in current year and will be eligable for service tax or not. 1. If he do not collect any service tax initially but crosses yearly receipt of 10 lac in the mid of the year, whether he has to pay service tax on the entire amount of receipts ? 2. If he collects service tax from the inception and do not cross the 10 lac receipt whether he has to pay the tax already collected by him Please guide

[Brijesh Verma]

Dear Mr. Anand First of all you might be aware that the exemption of 10 Lk is governed by Notification No. 6/2005. In that notification the first and foremost aspect that needs consideration is that the receipts in the immidiately preceeding F.Y. must not exceed 10lk in order to claim exemption in current FY. As far as you query is concerned, though you might not know what would happen in current FY but you have complete figures for the past year and if your turnover was less than 10 lk in that FY then in current FY you are not required to either charge or pay Tax to Govt. Once your receipt in current year exceed 10Lk then you have to pay tax in current year only on the excess portion and not on total receipt.One more thing I would like to add is that if your receipts in current year exceed 10Lk and you end up paying tax on balance portion then in the next year you should charge tax and pay the same right from the first rupee you earn as taxable turnover. We shall be happy to elucidate.

[Ravi Chopra]

It is true that a professional may not ascertain his billing or receipts that he is expected to earn from his profession specifically in the case where the service tax exemption is specific and turnover based. You need to check your turnover of the previous year. If it is exceeding Rs. 10 lakhs in the previous year, you can not claim exemption in the current year. If you start collection in the current year, you can not claim exemption in the current year. Therefore, after checking your records, if you find that your turnover of the previous year os not exceeding rs. 10 lakhs and you wish to avail the exemption, do not correct service tax from the clients till your turnover is not exceeding 10 lakhs. Once you cross the limit of 10 lakhs, you can start any making payment of service tax over and above rs. 10 lakhs. Please keep in mind that for the purpose of exemption, collection and billing are two separate concept.

AI Summary

Turnover-based service tax exemption depends on preceding year receipts; tax applies on excess once threshold is crossed. Applicability of service tax for professionals turns on a turnover-based exemption measured by receipts in the immediately preceding financial year. If the preceding year's receipts did not exceed the exemption threshold, the professional need not charge or remit service tax at the start of the current year. If current year receipts exceed the threshold, tax is payable only on the excess for that year, and after breaching the threshold the professional must charge and remit service tax from the first rupee in the next year.