Service tax reverse charge mechanism

1. CHENNAI
3rd Floor, ‘Creative Enclave’,
148-150, Luz Church Road,
Mylapore,
Chennai - 600 004.
Tel: +91 - 44 - 2498 4821
BANGALORE
Suite 920, Level 9,
Raheja Towers,
26-27, M G Road,
Bangalore - 560 001.
Tel: +91 - 80 - 6546 2400
COIMBATORE
#1533, Trichy Road,
Coimbatore, India – 641018.
Tel: +91 - 422 – 6552921
EMAIL
info@altacit.com
WEBSITE
www.altacit.com
Reverse Charge Mechanism.
Under Service Tax
By
Valli

2. CHENNAI
3rd Floor, ‘Creative Enclave’,
148-150, Luz Church Road,
Mylapore,
Chennai - 600 004.
Tel: +91 - 44 - 2498 4821
BANGALORE
Suite 920, Level 9,
Raheja Towers,
26-27, M G Road,
Bangalore - 560 001.
Tel: +91 - 80 - 6546 2400
COIMBATORE
#1533, Trichy Road,
Coimbatore, India – 641018.
Tel: +91 - 422 – 6552921
EMAIL
info@altacit.com
WEBSITE
www.altacit.com
Reverse Charge Mechanism Under
Service Tax -Introduction
• Service tax is the tax levied by the government on
taxable services. Service Tax is guided by the
provisions of Chapter V of the Finance Act, 1994 and
the service tax rules, 1994. Thus the finance act,
amendments to the finance acts provided in every
annual budget and the corresponding service tax rules
define the scope, extent and other conditions of levy of
service tax under Service tax Reverse charge
mechanism.
• As per section 68(1) of the Finance Act, 1994, every
person providing taxable services to any other person
shall pay service tax at rate specified in section 66.The
liability to pay service tax lies with the service
provider. He shall collect the service tax from the
service recipients and thus pay it to the account of
government.

3. CHENNAI
3rd Floor, ‘Creative Enclave’,
148-150, Luz Church Road,
Mylapore,
Chennai - 600 004.
Tel: +91 - 44 - 2498 4821
BANGALORE
Suite 920, Level 9,
Raheja Towers,
26-27, M G Road,
Bangalore - 560 001.
Tel: +91 - 80 - 6546 2400
COIMBATORE
#1533, Trichy Road,
Coimbatore, India – 641018.
Tel: +91 - 422 – 6552921
EMAIL
info@altacit.com
WEBSITE
www.altacit.com
Contn..
• But along with this, section 68(2) states that, central
government may specify any other person who shall
be liable to pay service tax and thus all provisions of
service tax shall apply normally. This means any
person other than service provider, i.e., the service
recipient shall be made liable to pay the service tax.
This mechanism of shifting the service tax liability
from service provider to the service recipient is known
as service tax reverse charge mechanism.
• The concept of reverse charge mechanism under
service tax was introduced with 1997 by inserting a
new subsection 68(1A) with notification no. 30/2012-
ST

4. CHENNAI
3rd Floor, ‘Creative Enclave’,
148-150, Luz Church Road,
Mylapore,
Chennai - 600 004.
Tel: +91 - 44 - 2498 4821
BANGALORE
Suite 920, Level 9,
Raheja Towers,
26-27, M G Road,
Bangalore - 560 001.
Tel: +91 - 80 - 6546 2400
COIMBATORE
#1533, Trichy Road,
Coimbatore, India – 641018.
Tel: +91 - 422 – 6552921
EMAIL
info@altacit.com
WEBSITE
www.altacit.com
Registration under Service Tax
 Every person who is liable to pay service tax shall take
registration under service tax as per section 69 of
Finance Act, 1994
 Service recipient shall obtain registration under service
tax as recipient of service, pay service tax and file
return
 Assessees who have to take registration :
 Service provider who has provided a taxable services
of value exceeding Rs. 9 lakhs in the preceding
financial year
 Service receiver liable to pay service tax under reverse
charge mechanism u/s 68(2) / rule 2(1)(d)
 Input service distributor
 Importer of service being person liable u/s 68(2)

5. CHENNAI
3rd Floor, ‘Creative Enclave’,
148-150, Luz Church Road,
Mylapore,
Chennai - 600 004.
Tel: +91 - 44 - 2498 4821
BANGALORE
Suite 920, Level 9,
Raheja Towers,
26-27, M G Road,
Bangalore - 560 001.
Tel: +91 - 80 - 6546 2400
COIMBATORE
#1533, Trichy Road,
Coimbatore, India – 641018.
Tel: +91 - 422 – 6552921
EMAIL
info@altacit.com
WEBSITE
www.altacit.com
Applicability of Reverse Charge
Mechanism In Service Tax ( RCM):
• Only on receiving specific services , reverse charge
mechanism is applicable. service receiver are liable
to pay service tax under reverse charge. This is not
applicable for all the service receiver.
• Service receiver is not paying extra service tax due to
reverse charge mechanism. The amount of service tax
payment is remained the same but liability to pay tax
to government is apportioned between
service receiver and service provider.
WHEN TO PAY TAX UNDER REVERSE CHARGE?
• Service receiver has to pay tax on reverse charge
only on making payment to service provider. The
condition is that service receiver should pay within
6 months from issuance of invoice.

6. CHENNAI
3rd Floor, ‘Creative Enclave’,
148-150, Luz Church Road,
Mylapore,
Chennai - 600 004.
Tel: +91 - 44 - 2498 4821
BANGALORE
Suite 920, Level 9,
Raheja Towers,
26-27, M G Road,
Bangalore - 560 001.
Tel: +91 - 80 - 6546 2400
COIMBATORE
#1533, Trichy Road,
Coimbatore, India – 641018.
Tel: +91 - 422 – 6552921
EMAIL
info@altacit.com
WEBSITE
www.altacit.com
Services under Reverse Charge
Mechanism
1) Import of services:
In case the service provider is located outside India and
any person is importing his services, i.e., service
recipient shall be liable to pay service tax for such
services.
2) Services of insurance agent:
Where an insurance agent is providing his services to a
person/company carrying on insurance business, i.e.,
services of insurance agent to the insurance company,
service recipient (insurance company) shall be liable to
pay service tax. 100% liability lies with the insurance
company and the normal rate shall apply.

7. CHENNAI
3rd Floor, ‘Creative Enclave’,
148-150, Luz Church Road,
Mylapore,
Chennai - 600 004.
Tel: +91 - 44 - 2498 4821
BANGALORE
Suite 920, Level 9,
Raheja Towers,
26-27, M G Road,
Bangalore - 560 001.
Tel: +91 - 80 - 6546 2400
COIMBATORE
#1533, Trichy Road,
Coimbatore, India – 641018.
Tel: +91 - 422 – 6552921
EMAIL
info@altacit.com
WEBSITE
www.altacit.com
Contn…
3) Services of goods transport agency (GTA):
GTA are a major component of reverse charge
mechanism. GTA provide the service of transportation
of goods by road by issuing a consignment note.
Person paying the freight shall be the service recipient
who shall be liable to pay service tax on such service.
4) Services of sponsorship:
Under the service tax reverse charge mechanism,
providing sponsorship is also considered a service
which is covered under reverse charge mechanism.
This means, the person receiving the sponsorship
shall pay the service tax on the same.

8. CHENNAI
3rd Floor, ‘Creative Enclave’,
148-150, Luz Church Road,
Mylapore,
Chennai - 600 004.
Tel: +91 - 44 - 2498 4821
BANGALORE
Suite 920, Level 9,
Raheja Towers,
26-27, M G Road,
Bangalore - 560 001.
Tel: +91 - 80 - 6546 2400
COIMBATORE
#1533, Trichy Road,
Coimbatore, India – 641018.
Tel: +91 - 422 – 6552921
EMAIL
info@altacit.com
WEBSITE
www.altacit.com
Contn..
5) Services of a tribunal:
Tribunal or the arbitral tribunal is the panel of persons
who solve disputes by way of arbitration (settlement).
This is one of the services considered under service
tax reverse charge mechanism. Thus the person
receiving the services of tribunal, i.e., whose conflict is
getting resolved will be the service recipient and will
be liable to pay service tax.
6) Services of advocates:
Services of advice or consultancy related to any law or
representation before court or any other authority
from the advocates are also included under reverse
charge mechanism. The person receiving such
services shall pay service tax.

9. CHENNAI
3rd Floor, ‘Creative Enclave’,
148-150, Luz Church Road,
Mylapore,
Chennai - 600 004.
Tel: +91 - 44 - 2498 4821
BANGALORE
Suite 920, Level 9,
Raheja Towers,
26-27, M G Road,
Bangalore - 560 001.
Tel: +91 - 80 - 6546 2400
COIMBATORE
#1533, Trichy Road,
Coimbatore, India – 641018.
Tel: +91 - 422 – 6552921
EMAIL
info@altacit.com
WEBSITE
www.altacit.com
Contn..
7) Services of manpower supply:
Providing manpower by any agent for any business entity
where manpower work with the business entity while being
on the roll of agent company is also a service which is
covered under reverse charge mechanism. Business entity
receiving manpower is the service recipient liable to pay
tax. 75% liability of service tax lies with service recipient
while 25% lies with service provider.
8) Services of renting motor vehicle:
Hired cabs, cars and buses are included under this service.
But it doesn’t include metered cab, public transport etc.
There can be two cases in view of this service-
Service provider availing input credit- liability of service
recipient is 40% while that of service provider is 60%.
Service provider not availing input credit-100% liability lies
with service recipient.

10. CHENNAI
3rd Floor, ‘Creative Enclave’,
148-150, Luz Church Road,
Mylapore,
Chennai - 600 004.
Tel: +91 - 44 - 2498 4821
BANGALORE
Suite 920, Level 9,
Raheja Towers,
26-27, M G Road,
Bangalore - 560 001.
Tel: +91 - 80 - 6546 2400
COIMBATORE
#1533, Trichy Road,
Coimbatore, India – 641018.
Tel: +91 - 422 – 6552921
EMAIL
info@altacit.com
WEBSITE
www.altacit.com
Contn..
9) Services of directors of company:
After introduction of negative listing approach, services of directors
have also been made taxable and covered under reverse charge
mechanism applicable from 07.08.2012. So, any payments
made to non executive directors such as sitting fees etc. are
taxable. 100% liability lies with service recipient.
10) Support services by authority:
Any life support services provided by government or local authority
are also taxable with effect from 01.07.2012 and the full
liability lies with service recipient.
11) Works contract:
There can be three cases of works contract- Both, service provider
and service recipient, have 50% liability each
 For new construction, addition, erection or commissioning of
plant & machinery
 Maintenance or repair or reconditioning services
 Works contract other than above two; for completion and

11. CHENNAI
3rd Floor, ‘Creative Enclave’,
148-150, Luz Church Road,
Mylapore,
Chennai - 600 004.
Tel: +91 - 44 - 2498 4821
BANGALORE
Suite 920, Level 9,
Raheja Towers,
26-27, M G Road,
Bangalore - 560 001.
Tel: +91 - 80 - 6546 2400
COIMBATORE
#1533, Trichy Road,
Coimbatore, India – 641018.
Tel: +91 - 422 – 6552921
EMAIL
info@altacit.com
WEBSITE
www.altacit.com
Service Tax Reverse Charge Mechanism
common provisions
 The taxable event in case of reverse charge mechanism
shall be the completion of provision of service. This
means, the liability to pay service tax arises as soon as
the services have been provided by the service provider
under service tax reverse charge mechanism
 Point of taxation shall be the date of payment to service
provider. In case the payment is not made within 6
months of the issue of invoice, date of invoice shall be
considered the point of taxation.
 There is no minimum exemption limit in case or reverse
charge mechanism. So, the service tax will be levied
even if value of services provided of service provider
doesn’t exceed Rs. 100000 and thus he is exempt from
service tax.

12. CHENNAI
3rd Floor, ‘Creative Enclave’,
148-150, Luz Church Road,
Mylapore,
Chennai - 600 004.
Tel: +91 - 44 - 2498 4821
BANGALORE
Suite 920, Level 9,
Raheja Towers,
26-27, M G Road,
Bangalore - 560 001.
Tel: +91 - 80 - 6546 2400
COIMBATORE
#1533, Trichy Road,
Coimbatore, India – 641018.
Tel: +91 - 422 – 6552921
EMAIL
info@altacit.com
WEBSITE
www.altacit.com
Cond..
 The service recipient can claim the tax credit of
service tax paid by him on input services. For this,
he shall be required to produce tax payment
challans as proof of payment.
 Service provider shall be required to pay the tax to
the government even if he doesn’t collect it from the
service recipients. So the actual burden is
irrelevant.

13. CHENNAI
3rd Floor, ‘Creative Enclave’,
148-150, Luz Church Road,
Mylapore,
Chennai - 600 004.
Tel: +91 - 44 - 2498 4821
BANGALORE
Suite 920, Level 9,
Raheja Towers,
26-27, M G Road,
Bangalore - 560 001.
Tel: +91 - 80 - 6546 2400
COIMBATORE
#1533, Trichy Road,
Coimbatore, India – 641018.
Tel: +91 - 422 – 6552921
EMAIL
info@altacit.com
WEBSITE
www.altacit.com
Important Points in Reverse
Charge Mechanism
 Liabilities of both the service provider and service
receiver are statutory and independent of each
other
 Liability cannot be shifted by mutual agreement
 Reverse charge will not apply where the service
receiver is located in non-taxable territory
 Reverse charge shall not be applicable if provider
of service was liable before 1.7.2012
 Service Tax will not be payable by service receiver
under reverse charge, if service was provided
prior to 1.7.2012, even if payment is made after
30.06.2012

14. CHENNAI
3rd Floor, ‘Creative Enclave’,
148-150, Luz Church Road,
Mylapore,
Chennai - 600 004.
Tel: +91 - 44 - 2498 4821
BANGALORE
Suite 920, Level 9,
Raheja Towers,
26-27, M G Road,
Bangalore - 560 001.
Tel: +91 - 80 - 6546 2400
COIMBATORE
#1533, Trichy Road,
Coimbatore, India – 641018.
Tel: +91 - 422 – 6552921
EMAIL
info@altacit.com
WEBSITE
www.altacit.com
Conclusion
 ‘Support services’ provided by Government or Local
Authority to Business Entity will continue to be taxed
under Reverse charge mechanism except (1) renting
of immovable property, and (2) services specified in
sub-clauses (i), (ii) and (iii) of clause (a) of section 66D
of the Finance Act, 1994.
 Reverse Charge provisions are equally important in
service tax regime which can’t be avoided.

15. CHENNAI
3rd Floor, ‘Creative Enclave’,
148-150, Luz Church Road,
Mylapore,
Chennai - 600 004.
Tel: +91 - 44 - 2498 4821
BANGALORE
Suite 920, Level 9,
Raheja Towers,
26-27, M G Road,
Bangalore - 560 001.
Tel: +91 - 80 - 6546 2400
COIMBATORE
#1533, Trichy Road,
Coimbatore, India – 641018.
Tel: +91 - 422 – 6552921
EMAIL
info@altacit.com
WEBSITE
www.altacit.com