May 272015
 

Possible tax planning due to change in service tax rates

We have discussed in detail in our previous article on new Service tax rate becoming effective from June 1, 2015 and how this change in going to change our service tax bill for services already completed or in the process of completion. In this article we will dig it out further this concept in detail and try to find out possibility of planning in terms of applicability of services tax rates.

As we are aware that service tax rates are revised to 14% (including education cess and secondary and higher secondary education cess) from existing rate of 12.36%. Hence, as far as old rates are applicable in your tax invoice, you can save 1.64% of total service value of your client. Here we will discuss the possibility of saving money due to applicability of point of taxation rules.

Services Completed Earlier to 1.6.2015:

Illustrations when old rate would apply

  • Where payment received before and invoice issued after 1.6.2015: The invoice raised on 15th June 2015, and service provided on 20th May 2015. Payment received on 30th May 2015. The service tax to be paid at 12.36%.
  • When the invoice issued before and payment received after 1.6.2015: The invoice raised on 15th May 2015, service provided on 4th May 2015 and payment received on 30th June 2015. The service tax to be paid at 12.36%.

Illustrations when new rate would apply

  • Invoice raised and payment received after 1.6.2015: The invoice raised on 15thJune 2015, and service provided in May 2015. Payment received in June 2015. The service tax to be paid at 14%.

Services Provided Post 1.6.2015:

Illustrations when old rate would apply

  • Invoice raised and payment received before 1.6.2015: If invoice raised on 5th May 2015, service provided in June 2015 and payment received on 15th Then service tax to be paid at 12.36%.

Illustrations when new rate would apply:

  • When invoice raised after 1.6.2015 and payment received before rate change: If invoice is raised on 5th June 2015, service provided in June 2015 and payment received on 15th Then service tax to be paid at 14%.
  • When invoice raised earlier to 1.6.2015 and payment made post change in rate: If invoice raised on 15th May 2015, service provided in June 2015,payment made on 1.6.2015. Then service tax to be paid at 14%.

 2 out of 3 planning:

From the above it can be understood that out of the 3 elements viz. (Date of issue of invoice, Date of payment and date of provision of service) if any of the 2 events occur before the effective date of change in rate, then the old service tax rate shall be applicable.

Conclusion:

Since the new rate is to be effective from June 1, 2015 therefore if any 2 events takes place before that then the benefit of old rate can be taken even after June 1, 2015. Hence, ask your service provider to issue tax invoices before June 1, 2015 for all services completed on or before May 30, 2015 or try to make advance payment to your service provider for services to be completed in near future.