SERVICE TAX LIABILITY OF ROYALTY

[RAM SHARMA]

Dear Experts,

We have made provision  from 1.1.2012 to 31.03.2012 on Service Tax of Royalty @10% under reverse charge machenism and payment made to foreign in may 2012. As per finance bill 2012 the rate of service tax is 12% from 1.4.2012. Now  i am confuse what will be the rate of charged either it is 10% or 12% for service receiver under reverse charge machenism beacuse service tax liability should be payment basis. Pl clerify.

Thanks 

[Vijay Chitte]

As per CBEC, Circular No. 158/9/2012 Dt.08.05.2012  in case of tax is required to be paid on reverse charge by the service receiver,  the date of payment on or after 1st April 2012, service tax need to be paid @12.36%.

[Vijay kumar]

In terms of Section 66A of the Finance Act, 1994 read with Rule 7 of  Point of Taxation Rules, 2011, you have to pay the service tax @ 12.36% which is applicable from 1.4.2012 since the date of payment is in May, 2012. The provision made by you in your books of account is not relevant.

AI Summary

Service Tax on Royalty Payments: 12.36% Rate Applies Post-April 1, 2012, per CBEC Circular and Section 66A. A query was raised regarding the applicable service tax rate on royalty payments under the reverse charge mechanism, specifically whether the rate should be 10% or 12% for payments made in May 2012. Two responses clarified that, according to CBEC Circular No. 158/9/2012 and Section 66A of the Finance Act, 1994, the applicable service tax rate is 12.36% for payments made on or after April 1, 2012. The provisions recorded in the books of account prior to this date are not relevant in determining the applicable tax rate.