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

Service tax exemption for financial leasing and hire-purchase excludes service tax on principal and interest under prescribed calculation. An exemption from service tax applies to financial leasing services, including equipment leasing and hire purchase, covering both principal and interest portions of installments; the interest amount for this purpose is taken as 90% of the difference between the installment paid and the principal component of that installment, under the effective rate notification.