Service tax including or excluding exemption limit

[Vijay Chitte]

As per the contract we will raise the bill 10 lacks per month to our cleint as consulatancy charges. As per Notification No. 6/2005-ST up to 4 lacks have been exampted from service tax. My query is, Service tax is to be charge on Rs.10 lacks + S.T. or 6 lacks only? (10 lacks-4 lacks + ST), please give your expert views.

[Surender Gupta]

You can avail the exemption under notification no. 6/2005 only if the turnover of taxable services provided in the previous year does not exceeds Rs. 4 lacks. You have not mentioned this fact in you query. Suppose you turnover was less than rs. 4 lachs in the previous year, in the current year you may avail the exemption upto rs. 4 lacs and start paying service tax on the value of service above rs. 4 lacs only.

[Madhukar N Hiregange]

For being eligible the value of taxable services provided in the previous year should not have been more than 4 L. In the current year the ST is payable after receipt of taxable services worth 4 lakhs. If no other receipt is there then it is possible that you can take a stand that on 4 lakhs as and when recived you would not be liable to pay and charge ST only on 6 l.

AI Summary

Service tax exemption allows tax only on receipts exceeding the prior-year turnover threshold, not on entire billed amounts.
Eligibility for the exemption under Notification No. 6/2005-ST requires that taxable services in the previous year did not exceed the four-lakh threshold; if eligible, exemption in the current year applies up to that limit and service tax is payable only on the value of taxable services exceeding the four-lakh exemption, so tax need not be charged until cumulative receipts surpass the exempt amount.