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Indirect Tax Laws
Notes 9. The ..........................................has formulated a proposal for online web-based Electronic
Tax Administration system for service tax.
10. ...................................................Tax Credit is very vital to the concept of Value Added
Tax system.
6.9 Computation of Service Tax
In continuation to our previous post service tax registration payment and return; we wish to
give you some more information about service tax. In this post you can read some regular
questions and its answers.
Shall I pay service tax on billed amount or amounts actually received?
How are you paying service tax? On billed amount or on receipt? Many are paying service tax on
billed amount and unaware of the concept ‘tax payment on amount actual received’. There is no
problem paying service tax on billed amount. But this is not the correct way for the payment of
service tax. A service provider is liable to pay service tax’ only when he receives the consideration
for his service. Thinking practically it is not fair paying service tax on service provided; that has
never received payment. I will explain this with an Example.
Example: ABC Ltd billed 500000.00 (Inclusive of service tax) on 1st May 2009. Payment
th
received 300,000.00 on 14 July and 200000.00 on 25th August.
From the above example let’s find out the service tax liability on each month.
Date Bill Payment Tax liability Service tax payment date
Amount received without interest
01/05/2009 500000.00 0 0 0
14/07/2009 0 300000.00 28014.00 05/08/2009
25/08/2009 0 200000.00 18677.00 05/09/2009
However there is an exception for this clause. Transaction between associated enterprises; service
tax is payable even if the consideration for service provided is received or not. The service tax is
payable immediately after debiting /crediting in the books of account.
How do We find out the tax liability on partly received payments?
From the above example, 500,000.00 is inclusive of service tax. This means ABC Ltd. charged a
gross amount of 453309.00. And a service tax 46691 in their service bill.
How do you calculate tax liability when you receive a part payment? Here you are getting
300000.00 as a part payment. So our liability is calculated by making back calculation on
300000.00 use the following formula.
Gross amount Charged × Rate of Tax
Tax Rate =
100 Rate of tax
300000 × 10.3
Tax Rate = 28014.00
110.3
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