Saturday, April 16, 2016

FAQs on Taxability of Services provided by Govt. to Business Entities

FAQs on Taxability of Services provided by Govt. to Business Entities

1.    Which services provided by Government to business entities are taxable?
With effect from April 1, 2016 all services provided by a Government or a Local Authority to business entities are taxable. Earlier only support services provided by them to business entities were taxable.

2.    Which services provided by Government covered under the negative list?
Services provided by Government are covered under the negative list. But following services are not covered under the negative list:
                              i)   Specified services by Department of Post,
                            ii)   Services in relation to aircraft or vessel,
                           iii)   Transport of goods or passengers,
                           iv)   Services provided to business entities.


3.    Which services have been exempted from service tax under Mega-exemption 25/2012?
Following services are exempt under Mega-exemption 25/2012:
i)      Services provided by Government or a local authority to a business entity with a turnover upto rupees ten lakhs in the preceding financial year.
ii)    Services provided by Government or a local authority to another Government or a local authority.
iii)   Services provided by Government or a local authority to an individual by way of grant of passport, visa, driving license, birth or death certificate.
iv)   Fines or liquidated damages payable to Government or a local authority for non-performance of contract.
v)    Services provided by Government or a local authority by way of registration required under the law or testing, safety check or certification relating to safety of consumers, etc.
vi)   Services in nature of allocation of natural resources to individual farmers or in relation to any function entrusted to Panchayat.
Note: Services provided by Government or a local authority would be exempted from service-tax if the gross amount charged for such service does not exceed Rs.5000. This exemption does not cover-
                                 i)      Specified services by postal department.
                               ii)      Services in relation to aircraft or vessel.
                              iii)      Transportation of goods or passengers


4.    What would be the Point of taxation of services provided by Government or Local Authority?
In case of services provided by Government or a local authority, the point of taxation shall be the date:
                           i)   when payment in part or full in respect of such services become due or,
                         ii)   when payment for such services is made
-    whichever is earlier.
5.    How services provided by government should be valued?
The amount charged by Government or a local authority for providing services will be considered as a value of taxable service. It has been specifically provided that amount of interest or any consideration charged for allowing deferred payment is includible in value of service.

6.    Who is liable to pay tax on services provided by Government or Local Authority?
The recipient of services are required to pay service tax on services received from Government or a Local Authority under reverse charge basis.

7.    On basis of which documents can Cenvat Credit be availed in respect of services provided by Government or a Local Authority?

Cenvat Credit can be availed on the basis of challan evidencing payment of Service Tax by the service recipient.
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