Service Providers Foxed by New Tax Rule

The Budget has left several service providers ranging from tax consultants to travel agents, architects to interior decorators, in a quandary over the new rate of service tax, which has been hiked from 10% to 12% with effect from April 1.

A few of these service providers raise invoices or bills for the services provided by them several months later and realisation of payment takes place then. The issue of debate is whether one would have to pay 12% service tax for a service rendered before March 31, but bill raised and payment received thereafter?

The service tax department has clarified that in such cases where services have been rendered before or on March 31, would attract 10% tax, though payment can be received on a later date. “Against a service rendered by a small and medium service provider before or on March 31 and the bill raised and payment is received after it, the tax will be charged at 10%,“ said VK Garg. 

joint secretary, Central Board of Excise and Customs (CEBC).

As a word of caution, Garg said that the mere issuing of invoice, without providing service would not benefit service providers.

“If someone raises an invoice before March 31 and provides service after this date to avoid paying 12% tax, it will be considered as a case of tax evasion,“ said Garg.

CBEC may initiate action against such tax evaders.

“This clarification will be beneficial for professional service providers, as realisation of payment takes at a much later date from the date of providing service,“ said JK Mittal, chairman, Indirect Tax Committee, PHD Chamber.

Hindustan Times, New Delhi, 23-03-2012