Applicability of service tax - recognition or advance basis

[Rahul Bagaria]

In my opinion service tax should be paid on revenue recognisation and not on the advance payment.This is in context with advance premium received by an insurance company and its liability to pay service tax.Service tax should be paid only on the revenue recognisation and not on advance payment of premium

AI Summary

Debate on Service Tax: Should Insurance Companies Pay on Recognition or Advance Basis for Premiums? A query was raised about whether service tax should be paid on a recognition or advance basis, specifically regarding advance premiums received by insurance companies. The initial opinion suggested service tax should be paid upon revenue recognition, not on advance payments. A response highlighted that service tax was initially payable on an accrual basis, but later shifted to a realization basis. It was suggested that the legislature should allow taxpayers the option to choose between realization and accrual basis, with the condition that the chosen method cannot be changed later, due to reconciliation challenges. The current practice of paying service tax on receipt supports taxing advances.