Reverse Charge mechanism under Service Tax

1)  What is Reverse Charge Mechanism (RCM) ?

A)      Service Tax is charged by the service provider to the service recipient. Service Provider collects Service Tax from the Service Recipient and pays it to the Government. However, under RCM, the service provider is not liable to pay service tax or is liable to pay service tax up to a certain extent. The balance has to be paid by the service recipient on behalf of the service provider. Government has notified certain services to whom RCM will be applicable. The service tax on these services shall be paid by such person at such rates as notified. In brief, the service recipient will be liable to pay service tax at such percent as specified in the relevant rules.

2) To whom is RCM applicable?

A)    Service tax payment under RCM is applicable only under the following circumstances:

i)     The service provider is an individual, HUF or partnership firm (registered or unregistered) or association of persons located in the taxable territory

ii)    The service is provided to a service recipient who is a body corporate i.e. a private/public limited company located in the taxable territory

If the above conditions are not met, service provider will be required to pay the entire service tax.

3)  Services covered under reverse charge system vide Notification No. 30/2012-ST Dated-20th June, 2012 with effect from 01.07.2012:

Sr.
No.
Description
of a Service
Service
provider
Service
Receiver

Percentage

of
service

tax
payable

by
the

person

providing

service

 

Percentage

of
service

tax
payable

by
the

person

receiving

the
service

1. Insurance
Services:

in respect of services provided or agreed to be
provided by an

insurance agent to any person

carrying on insurance business

Insurance
Agent
Business
man

carrying on

insurance

business

Nil 100
2.

GTA:

in respect of services provided or agreed to be
provided by a goods transport agency in respect of transportation of goods by
road

Goods
transport

agency

Consignor
or

Consignee is

specified

person

Nil 100
3.

Sponsorship:

in respect of services provided or agreed to be
provided by way of sponsorship

 

Any
person

Body

corporate or

partnership

firm

Nil 100
4. Arbitral
Tribunal:

in respect of services provided or agreed to be
provided by an

arbitral tribunal

Arbitral

tribunal

Business
entity
Nil 100
5. Advocate
Services:

in respect of services provided or agreed to be
provided by

individual advocate

 

Individual
Advocate
Business
entity
Nil 100
5A. A
director of a company:

In respect of services provided or agreed to be
provided by a director of a company to the said company

A
director of a company
To
the said company
Nil 100
6. Support
Services:

in respect of services provided or agreed to be
provided by way of support service by Government or local authority

 

Government Business
entity
Nil 100
7. Rent
a Cab Service:

(a) In respect of services provided or agreed to be
provided by way of renting or hiring any motor vehicle designed to carry
passenger on abated value.

(b) In respect of services provided or agreed to be
provided by way of renting or hiring any motor vehicle designed to carry
passenger on non-abated value.

Individual/HUF/

Proprietary or

partnership

firm/AOP

Company

under

Companies

Act, 1956

Nil

 

 

 

 

 

 

 

60

100

 

 

 

 

 

 

 

40

8. Supply
of Manpower/ security services:

in respect of services provided or agreed to be
provided by way of supply of manpower for any

purpose

 

Individual/HUF/

Proprietary or

partnership

firm/AOP

Company

under

Companies

Act, 1956

 

25 75
9. Works
Contract Services:

in respect of services provided or agreed to be
provided by way of works contract

 

Individual/HUF/

Proprietary or

partnership

firm/AOP

 

Company

under

Companies

Act, 1956

50 50
10. in
respect of any taxable

services provided or agreed to be provided by any
person who is located in a non-taxable territory and received by any person
located in the taxable territory

 

Any
person
Any
person
Nil 100

 

4)     Registration & Returns

Under RCM, the service recipient will have to register as a service tax assessee & file service tax returns. The basic exemption limit of Rs. 10 lacs is not applicable to a service recipient. This means that even if the value of services received is below Rs. 10 lacs, even then service tax is payable at the applicable percentage.

5)   Invoice & Service Tax Credit

Proper invoice should be issued by the service provider and only his portion of the service tax applicable should be mentioned on the invoice. It should be remembered that, service recipient cannot utilise cenvat credit cannot be utilised for payment of service tax. Consequently, service receiver has to pay service tax only in cash.

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