Effective rate applicable

[Abhishek Upadhyay]

Service Tax liability under the category of Banking and other financial service for hire purchase agreement of an equipment. Principal amount - Rs.200000.00 Monthly Interest amount - Rs. 10000.00 Service tax payable on the above as per effective rate vide Notification No. 4/2006 ST dated 01.03.06

[Markesh Antony]

Exemption from service tax has been provided to financial leasing services including equipment leasing and hire-purchase, both for principal and interest portion of the installments paid. The amount of interest is calculated as 90% of the difference between the installment paid towards the payment of the lease amount and the principal amount in such installment. (Notification No.4/2006 -Service Tax dated 1.3.2006)

AI Summary

Hire Purchase Agreement Exempt from Service Tax: Principal and Interest Covered Under Notification No. 4/2006 ST. A query was raised regarding the service tax liability for a hire purchase agreement under the category of Banking and other financial services. The principal amount is Rs. 200,000 with a monthly interest of Rs. 10,000. A response clarified that there is an exemption from service tax for financial leasing services, including equipment leasing and hire-purchase, covering both the principal and interest portions. The interest amount is calculated as 90% of the difference between the installment paid and the principal amount, as per Notification No. 4/2006 ST dated 01.03.06.