Service tax exemption

[Bijay Shrestha]

A company incorporated in FY 2014-15 and is providing service in FY 2014-15 for ₹ 9,50,000/-. Here the Company has not collected service tax from customers. Now in FY 2014-15, the Company has to register for Service tax and can claim exemption upto ₹ 10 Lakhs.

In FY 2015-16, The Company has provided services for ₹ 15 Lakhs. also not collected any Service Tax. Now the Company can claim exemption upto ₹ 10 Lakhs and pay service tax on ₹ 5 Lakhs. here the company has not collected any service tax.

So my query is whether the Company has to collect Service tax from customers of ₹ 5 Lakhs and pay to the Govt. or if the Customers do not agree to pay ST , then the Company has to pay from own pocket or ₹ 5 lakhs is considered to be inclusive of Service tax and make back calculation and pay service tax i.e ₹ 5 lakhs * 14.5/114.5 i.e. ₹ 63,319/- Service tax???

Please share your views friends.

[Ganeshan Kalyani]

In FY 2014-15, the consideration received for service rendered is below the threshold limit . Hence no need to register under service .

In FY 2015-16, the company need to register and pay service tax on 5 Lacs. The service tax provision states that the provider of taxable service shall pay service tax on the amount in excess of SSI limit. But it does not specifically mentions that the service tax element to be collected from the recipient of service. Hence either you collect Service Tax component from recipient of service or pay service tax on 5 Lacs by calculating service tax on 5 Lacs . Further it depends upon the agreement between service provider and service receiver that whether the consideration is inclusive of service tax or the amount excludes the same .thanks.

[Bijay Shrestha]

I agree but in FY 2014-15, value of Service provided exceeded ₹ 9 Lakhs. So ST Registration is required.

Secondly, generally if the Customers do not agree to pay ST again separately, then service provider can make back calculation i.e gross-up and pay service tax i.e.₹ 5 lakhs * 14.5/114.5 i.e. ₹ 63,319/- .

Also Service Tax is indirect tax and service provider has to collect from consumer ST from customers. So Service Provider generally does not pay from his own pocket. So it is better to make back calculation and pay ST right??

[Ganeshan Kalyani]

If the consideration crosses 9 Lacs and further amount is expected to receive which will be more than 10 Lacs then registration is required to be taken after the consideration crosses 9 Lacs. But if total consideration received is only 9.5 Lacs and no other consideration is expected to receive then in my view no need to take registration.

The taxes may be collected from customer and paid to government or may be paid by working out on the basis of inclusive method. But it depends on the agreement.

Further if you collect service tax on 5 Lacs then 5 Lacs will be your revenue but if you pay on the basis of inclusive method then your revenue will be reduced by the tax amount. Now you decide

[Bijay Shrestha]

Exactly.

In case of inclusive method, revenue will be reduced if the customers do not pay service tax.

And for Registration,

In terms of Section 69 of the Finance Act,1994 (Chapter V) read with rule 4 of the Service Tax Rules,1994 – Every person who has provided a taxable service of value exceeding ₹ 9 lakhs, in the preceding financial year, is required to register with the Central Excise or Service Tax office having jurisdiction over the premises or office of such service provider.

[Rajagopalan Ranganathan]

Sir,

Section 67 (2) of Finance Act, 1194 provides that " where the gross amount charged by a service provider, for the service provided or to be provided is inclusive of service tax payable, the value of such taxable service shall be such amount as, with the addition of tax payable, is equal to the gross amount charged.

Therefore, if the gross amount charged by the service provider is inclusive of service tax, that is, service tax not charged separately in invoice, value of taxable service will be calculated by back calculations such that with addition of service tax payable, the total is equal to the gross amount charged. Therefore you can service tax on 5lakhs as indicated in your query, that is, ₹ 63,319/-.

[Bijay Shrestha]

exactly sir.

[Ganeshan Kalyani]

My query out of curiosity, why you want to pay service tax by inclusive method, when you can collect it and pay to the Exchequer. The recipient of service will get credit if he /she has output taxable service. Pls. Reply.

[Bijay Shrestha]

Agree.

I am telling only if ST cannot be collected from customers, then follow inclusive method.

[Ganeshan Kalyani]

Ok. Then that is the only option left out as department would levy interest penalty if the tax due is not paid.

AI Summary

Company Must Register for Service Tax Once Exceeding 9 Lakhs; Pay Tax on 5 Lakhs Using Back Calculations A discussion on a forum addresses a company's obligation to register and pay service tax. In FY 2014-15, the company provided services worth 9.5 lakhs without collecting service tax, staying under the 10 lakh exemption limit. In FY 2015-16, services reached 15 lakhs, requiring tax on 5 lakhs. Participants debate whether the company should collect service tax from customers or pay from its revenue using an inclusive method. The consensus suggests registration is necessary when services exceed 9 lakhs and, if tax cannot be collected, using back calculations to determine the tax amount.