TaxTMI 
TaxTMI 
I have taken as advance for our capital assets expansion for providing exempted service on interest free basis and the same is deducting from service charges receipts,which is an exempt service during f.y.2014-2015.Department view is that , " since the service receiver has given the advance amount interest free the interest incurred @ 8.75% on ₹ 20000000/- or as the case may be , should be part of the Taxable value for the purpose of discharging of service tax liabilities." We have already mentioned the above mentioned amount in our Balance - Sheet . Is advance taken on interest free basis liable to service tax ?
service tax on interest free loan
30 Jul 2016 
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Interest-free advance taxability: notional interest may be included if the advance constitutes consideration or affects taxable service value.
Whether an interest-free advance forms part of taxable value depends on whether it constitutes consideration for a service or otherwise influences taxable value; Rule 5 of the Service Tax (Determination of Value) Rules, 2006 excludes interest accruable on advances from automatic inclusion, but notional interest may be included where the advance directly or indirectly affects the taxable value, requiring contractual and factual analysis of the advance's connection to the service. (AI Summary)
Whether an interest-free advance forms part of taxable value depends on whether it constitutes consideration for a service or otherwise influences taxable value; Rule 5 of the Service Tax (Determination of Value) Rules, 2006 excludes interest accruable on advances from automatic inclusion, but notional interest may be included where the advance directly or indirectly affects the taxable value, requiring contractual and factual analysis of the advance's connection to the service. (AI Summary)