_ap_ufes{"success":true,"siteUrl":"taxmasala.in","urls":{"Home":"http://taxmasala.in","Category":"http://taxmasala.in/category/budget/","Archive":"http://taxmasala.in/2017/03/","Post":"http://taxmasala.in/section-269st/","Page":"http://taxmasala.in/guest-post/","Attachment":"http://taxmasala.in/section-269st/section-269st-2/","Nav_menu_item":"http://taxmasala.in/3034/","Safecss":"http://taxmasala.in/?safecss=safecss","Feedback":"http://taxmasala.in/?post_type=feedback&p=3290"}}_ap_ufee

Point of taxation rules ( POT rules) : The ultimate guide with example

point of taxation rules Service tax rate is changed from 12.36% to 14%. To determine service tax liability on or after change of rate, point of taxation rules of service tax plays the main role.

We all know that service tax should be paid by 6th of following month when service is deemed to provided.So which rule decides when is service deemed to be provided? of course, POT rules.

Point of taxation rules use:

It decides taxable event date and due date of payment of service tax. As per rule 6(1) of service tax rules, service tax shall be deemed to paid to the credit of government by 6th of the month /quarter immediately following the month/quarter in which service is deemed to be provided.

Point of taxation covers following rules:

Rule 2A of POT rules : Meaning of date of payment

Rule 3 of POT rules: Determination of point of taxation.

Rule 4 of POT rules: Point of taxation when there is change in effective rate of tax

Rule 5 of POT rules: point of taxation when service is taxed first time.

Rule 7 of POT rules: Point of taxation for specified services – reverse charge mechanism.

Rule 8 of POT rules: Royalty services POT rules

Rule 8A of POT rules: best of judgement rule ( residual rule)

Rule 9 of POT rules:Transitional provisions

We will understand one by one rule with example.

Rule 3 of POT rules:Determination of point of taxation:

As per rule 3 of POT rules,

POT is earlier of the following

  1. When invoice is issued within due date of issue of invoice
  2. When payment is actually received by service provider

Due date of issue of invoice:

Invoice should be issued within 30 days from the date of completion of service.

There is another condition that when invoice is not issued within due date,

POT is earlier of the following:

  1. When payment is actually received by service provider
  2. Date of completion of service

Let it understand with POT chart:

Date of completion of serviceDate of invoiceDate of paymentPoint of taxationDue date of service tax payment
30/4/131/5/1330/5/131/5/136/6/13
30/4/1311/6/1317/6/1330/4/136/5/13
30/4/1311/5/132/5/132/5/136/6/13
28/3/1311/5/1315/5/1328/3/1331/3/13

 

Date of payment meaning under POT rules ( Rule 2A):

Date of payment for payment  shall be earlier date from the following

  1. Date when payment is entered in the books of accounts
  2. Date when the bank account of the person is credited. or cash received.

But date of payment is date of credit in bank account when

  1. There is change in effective rate of tax or the service is taxed first time during the period of credit in books of accounts and credit in bank account
  2. The payment is credited after 4 working days from the date when there is change in effective rate of tax or the service is taxed first time.

understand with example:

Date of credit in books9/11/14
Date of change of service tax rate10/11/14
Date of credit in bank account15/11/14
Date of payment for POT purpose15/11/14

 

Suppose date of credit in bank account is 12/11/14 then 9/11/14 shall be considered as date of payment for POT purpose.

You may think why it is important. It is important because rate of duty is determined as per POT rule. When date of payment is before date of change of duty, old rate will be considered for service tax purpose.

Kindly note that this rule is applicable for bank payment only and not when payment is received by cash.

Rule 4 of Point of taxation rules: POT when there is change in effective rate of tax:

This rule will be applied when there is change in effective rate of tax. New service tax rate 14% is applicable from 1st June, 2015. Now many assessee has the question about charging service tax at 12.36% or 14% in following events:

  1. When service is provided before 1st june, 2015 and invoice is issued after 1st june, 2015?
  2. What if service is provided and invoice is issued before 1st June, 2015 but payment is received after june 1st, 2015?
  3. What service tax rate should be considered when invoice is raised and payment is received before 1st june, 2015 but service is provided after 1st June, 2015?

We can use rule 4 of POT rule to determine point of taxation in above cases.

 

Service providedInvoice issuedPayment receivedService tax rate
 Before 1st june, 2015On or after 1st juneOn or after 1st june14%
 Before 1st June, 2015Before 1st June, 2015On or after 1st june12.36%
 Before 1st June,2015On or after 1st juneBefore 1st June, 201512.36%

After 1st June, 2015
Before 1st June, 2015On or after 1st june14%
 After 1st June, 2015Before 1st June, 2015Before 1st June, 201512.36%
 After 1st June, 2015After 1st June, 2015After 1st June, 201514%

Note : First june should be considered as date of change of effective rate of tax.

To make it simple, we can see that majority is prevailed here.

Consider three factors:

  1. Date of provision of service
  2. Date of payment received
  3. Date of invoice issued.

When two factors are before the date of change in service tax rate, old rate will be considered. If two factors are on or after the date of change in service tax, new rate will be applicable.

Swachh bharat cess is levied on 15/11/2015 and service tax rate is increased to 14% to 14.5%.

Decide when to charge 14.5% rate from the following table:

Service providedInvoice issuedPayment receivedService tax rate
 Before 15th Nov, 2015On or after 15th NovOn or after 15th Nov14.5%
 Before 15th Nov, 2015Before 15th Nov, 2015On or after 15th Nov14%
 Before 15th Nov,2015On or after 15th NovBefore 15th Nov, 201514%

After 15th Nov, 2015
Before 15th Nov, 2015On or after 15th Nov, 201514.5%
 After 15th Nov, 2015Before 15th Nov, 2015Before 15th Nov, 201514%
 After 15st Nov, 2015After 15th Nov, 2015After 15th NOv, 201514.5%

 

 

Rule 5 : Point of taxation when service is taxed first time:

When service is taxed first time, no service tax should be payable

  1. when invoice has been issued and payment received for such invoice before the service becomes taxable.
  2. if the payment has been received before the service becomes taxable and invoice has been issued within 14 days from the date when the service is taxed first time.

Rule 7: Point of taxation when service tax is payable under reverse charge mechanism:

when service receiver is liable to pay service tax under RCM, the point of taxation shall be the date when the payment is made. There is one condition in this rule that the payment should be made within six months of date of invoice.

So if you are liable to pay service tax under RCM, consider the date of payment to the service provide to determine when to pay service tax to government department. It will be 6th/7th of  next month or next month from the end of quarter.

Rule 8: point of taxation for royalties, copyrights etc. :

Rule 8 applies when amount received for royalties, patent, copyrights etc. The whole amount is not receivable in these cases. The amount is some percentage of sales amount or sale value of copies sold.

In this case, service shall be deemed to have been provided at earlier of the following:

  1. Payment received or benefit is received
  2. Invoice is raised.

Rule 8A: Residual rule- best of judgement:

This rule is residual rule. When assessee has not information available for payment received or date of invoice ( one or both), the central excise officer require to concern person produce such books of accounts or documents which are necessary and after taking into accounts all the facts and rate prevailing at that time, shall by order in writing, after  giving opportunity of being heard, determine the point of taxation to the best of his judgement.

 

 

 

 

 

 

 

 

 

 

 

 

 

12 Comments

  1. By shamsher singh

    thanks

  2. By Mohit

    Which one is preferable under RCM condition in case of change in effective rate of Tax. Rule 4 or Rule 7 ?

    • By admin

      Rule 7.

      • By Asvind

        Mam is nay education cess or higher edu. cess included in 14% (like 12.36% , 1 & 2 ) please clear if yer please suggest me.

      • By admin

        You do not need to charge cess or higher edu cess. 14% service tax is flat rate.

  3. By Anmol Arora

    What will be the service tax rate where invoice is issued before change in rate of service tax, amount from party is received as an advance after change in rate of service tax but services are provided as maintenance services on a monthly basis ?

  4. By vivekanand Jha

    Hello Madam
    If a Transporter paid reimbursement of Godown rent in that case service tax is applicable on reimbursement of godown rent.

  5. By JItendra Parida

    I have doubt in services Tax relating to Works Contracts. If Company provide services relating to erection,commissioning and installation and invoice received two separated for supply invoice and erection invoice.but supply invoice VAT applicable no problem but Service invoice ST applicable, my doubt what is ST liability . I will calculate ST with abatement(60%) or without abatement?

    • By JItendra Parida

      Reply Urgent please

  6. By SANJEEV GOEL 9896017944

    Hello Mam. We are a men power supply cum security agency under proprietorship concern.. our service tax turnover up to financial year 2010-11 was less then ten lac per Annam and in FY 2011-12 it achieved Rs 70 lac. My query is weather we are eligible for exemption of Rs 10 lac in FY 2011-12 or not. on which amount we are liable to pay service tax i.e on Rs 70 Lac or on Rs 60 lac (70-10) ..

  7. By JO

    HOW CAN ENTER WORKS CONTRACT SERVICE TAX RATE OF 5.8 IN RETURN ,DO POSSIBLE TO ENTER DIRECT AS 5.6 OR 5.8? SYSTEM ACCEPTING 14% BUT NOT ACCEPTING 5.6

  8. By Sunny Mathew

    please tell me how to deduct service tax from the work bill amounting to rupees 50000/- . Value Added Tax , Income Tax and Workers Welfare Cess are also deducted at the rate of 4%, 1% and 1% respectively. Service Tax has not been deducted so far from the work bills of contractors.Correct information may be given. Consider it as as a small construction work.

Shares

Share This

Share this post with your friends!