Revised Service tax rate 14% applicable from June 1: Practical Implication

 Revised Service tax rate 14% applicable from June 1: Practical Implication  Revised Service tax rate 14% applicable from June 1
May 222015
 

Revised Service tax rate 14% applicable from June 1: Practical Implication

After the Hon’ble President has given assent to the Finance Bill, 2015 on Thursday, May 14, 2015, the Ministry of Finance, Department of Revenue vide Notification No. 14/2015-ST dated May 19, 2015 has notified increase in the rate of Service tax from 12.36% to flat 14% (Including Education Cess and Secondary & Higher Secondary Education Cess) to be effective from June 1, 2015. The extract of notification is reproduced hereunder:

“In exercise of the powers conferred by clauses (a), (c) and (f) of section 107, section 108, sub-sections (2), (3) and (4) of section 109, section 153 and section 159 of the Finance Act, 2015 (No. 20 of 2015), the Central Government hereby appoints the 1st day of June, 2015 as the date on which the provisions of clauses (a), (c) and (f) of section 107, section 108, sub-sections (2), (3) and (4) of section 109, section 153 and section 159 of the said Act shall come into force.”

With the new Service tax rate becoming effective from June 1, 2015, the much debated topic among the Trade on the presently applicable rate of Service tax would definitely come to an end but there are chances of protest being faced by the service provider in respect of the ongoing transactions for which either certain advance payment is received prior to June 1, 2015 but the completion of provision of service may take place post facto thereof or vice versa.

To understand the issues further, it is appropriate here to have an overview of the Point of taxation as governed under the Point of Taxation Rules, 2011 (“the POT Rules”).

With the introduction of the POT Rules,Service tax payment is made on accrual basis in terms of the provisions contained under the POT Rules. The general Rule 3 of the POT Rules stipulates that Point of taxation shall be the earlier one among raising of invoice or date of making the payment. Further, if the invoice is not raised within 30 days(45 days for Banking and financial services) from the date of completion of provision of service, Point of taxation shall be the date of completion of provision of service.

Thus, by applying the provisions of Rule 3 of the POT Rules, the service provider would be liable to pay Service tax on the advance payments received at the prevailing rate of 12.36%. However, the service provider may encounter the issue of adjusting this payment of tax for increase in Service tax rate after wards when the service will be provided and invoice will be raised for the services rendered, for which advance has been received already. This issue is discussed in detail hereunder.

Point of taxation involving change in effective rate of tax is governed by Rule 4 of the Point of Taxation (POT)Rules, which provides for determination of Point of taxation when there is change in effective rate of tax (hereinafter referred as “the change”) as mentioned in the table below:

S. No. Taxable services have been provided Invoice is issued Payment received POT shall be Applicable rate
1 Before the change After the change After the change Date of issuance of invoice or Date of receipt of payment,whichever is earlier 14%
Before the change After the change Date of issue of invoice 12.36%
After the change Before the change Date of payment 12.36%
2 After the change Before the change After the change Date of payment 14%
Before the change Before the change Date of receipt of payment or date of issue of invoice, whichever is earlier 12.36%`
After the change Before the change Date of issue of invoice 14%

 Now based on above discussion, some practical scenario can be resolved as under:

Case No Service rendered Invoice issued Payment Made Tax rate
Case 1 Up to 31.05.15 Up to 31.05.15 Up to 31.05.15 12.36%
Case 2 Up to 31.05.15 After 31.05.15 After 31.05.15 14%
Case 3 Up to 31.05.15 Up to 31.05.15 After 31.05.15 12.36%
Case 4 Up to 31.05.15 After 31.05.15 Up to 31.05.15 12.36%
Case 5 After 31.05.15 Up to 31.05.15 Up to 31.05.15 12.36%
Case 6 After 31.05.15 After 31.05.15 After 31.05.15 14%
Case 7 After 31.05.15 Up to 31.05.15 After 31.05.15 14%
Case 8 After 31.05.15 After 31.05.15 Up to 31.05.15 14%

Thus, problem may be faced by service provider in case advance payment is received but services are actually provided on or after 01.06.15. In this case service provider is liable to collect differential amount of service tax from service receiver and deposit the same to central government.

Valuation of perquisite in respect of free education

 Valuation of perquisite in respect of free education  Valuation of perquisite in respect of free education
May 222015
 

Valuation of perquisite in respect of free education

The basis of valuation of education facilities provided by employer:m

TRAINING OF EMPLOYEES

Amount spent for providing free education facilities to, and training of the employee, is not taxable. Thus, any type of job oriented training given to its employee by employer is not taxable in the hands of employee.

FIXED EDUCATION ALLOWANCE

Fixed education allowance given in cash by the employer to the employee to meet the cost of education of the family members of the employee is exempt from tax to the extent of Rs.100 per month per child(up to a maximum of two children). Moreover,any allowance granted to an employee to meet hostel expenditure of his child is exempt from tax to the extent of Rs.300 per month per child for a maximum of two children.

PAYMENT OF SCHOOL FEES OF EMPLOYEES’ CHILDREN

School fees of the family members of the employees, paid by the employer directly to the school, is taxable as a perquisite in all cases.

REIMBURSEMENT OF SCHOOL FEES OF EMPLOYEES’ CHILDREN
Reimbursement of expenditure, incurred for the education of the family of the members of the employee, is taxable as a perquisite in all cases.

EDUCATIONAL FACILITY IN EMPLOYER’S INSTITUTE

Different situation Amount chargeable to tax
Where the educational institution is owned and maintained by the employer and educational facility is provided orwhere such educational facility is provided in any institute by reason of employee’s   employment with the employer, like employees of NCPEC are getting education facility in the schools maintained by NHPC-

Situation (i):

Where educational facility is provided to employee’s children

§  Where cost of education or value of such benefit does not exceed Rs. 1,000 per month per child (no restriction on number of children)

 Nil 
§  Where such amount exceed Rs. 1,000 per month per child Cost of such education in a similar institution in or near the locality minus Rs.1,000 per month per child minus amount paid or recovered from the employee
 Where educational facility is provided to member of his household (other than children)-  Grand children and other member of household are included in this rule of perquisite valuation. Cost of such education in a similar institution in a similar institution in or near the locality (-) amount paid or recovered from the employee

TRUST FOR THE BENEFITS OF EMPLOYEE’S CHILDREN

If contribution is made under an educational trust,created for the named children employees, the same is not taxable.

Payment of the scholarship amount was never received by the employee but by the children concerned or deposited in the special amount referred to in the scheme. Hence no perquisite in the hands of employee concern.