Reverse charge mechanism

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This presentation takes you through the basic provisions of Reverse Charge / Joint Charge mechanism introduced w.e.f 1-7-2012. The provisions have wide ramifications as now very few businesses would be able to avoid taking registration with the service tax department.

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Reverse charge mechanism

  1. 1. Introduction of Reverse Charge Mechanism (RCM) What do you mean by RCM? Consult Construction info@consultconstruction.com
  2. 2. Consult Construction is a consulting firm with all governance, compliance and IT related services related to the construction sector under one roof. Focus Areas :Corporate Governance Management Audit Project Budgeting and Monitoring Indirect Tax Compliances Corporate Training Information Technology and Allied Services ISO Implementation Consult Construction info@consultconstruction.com
  3. 3. Indirect Tax Services Advice on the applicability and levy of Service Tax, CST and State VAT on Contracts entered into or proposed to be entered into by the company. Assistance in the structuring of transactions and agreements in relation to inter-state and intra-state sales to optimise the tax incidence Conduct tax based health checks to determine the service tax & Multi State - VAT implications on the operations, Giving Multi State VAT opinions Consult Construction info@consultconstruction.com
  4. 4. Legal Framework – Reverse Charge • • • • • Section 68(2) –Charging Section Rule 2(1)(d) of STR – Person Liable to Pay Rule 9(1)(e ) of CCR-Challan Rule 4A of STR – Invoice Rule 7 of POTR – Due Date Consult Construction info@consultconstruction.com
  5. 5. Consult Construction info@consultconstruction.com
  6. 6. Person Liable to Pay Tax Description of Service Service Provider Service Receiver Person Liable Rate of Tax Insurance Business Insurance Agent Insurance Company Insurance Company 12.36% Goods Transport GTA Specified persons Specified persons 12.36% Sponsorship Any person Body corporate or Firm Body corporate or Firm 12.36% Legal Services Arbitral Tribunal or Advocate Business Entity Business Entity 12.36% Support Services Government or Local Authority Business Entity Business Entity 12.36% Consult Construction info@consultconstruction.com 6
  7. 7. Person Liable to Pay Tax Description of Service Service Provider Service Receiver Person Liable Rate of Tax Hiring of Motor Vehicle On abated Value Individual, HUF, Prop. Firm, P’ Firm, or AOP Business Entity registered as Body Corporate Business Entity registered as Body Corporate 12.36% Hiring of Motor Vehicle On non abated Value Individual, HUF, Prop. Firm, P’ Firm, or AOP Business Entity registered as Body Corporate Business Entity registered as Body Corporate 40% of 12.36% Provider Supply of Manpower & Security Services for any purpose Individual, HUF, Prop. Firm, P’ Firm, or AOP Business Entity registered as Body Corporate Business Entity registered as Body Corporate Provider Consult Construction 60% of 12,36% 75% of 12.36% 25% of 12.36% info@consultconstruction.com 7
  8. 8. Person Liable to Pay Tax Description of Service Service Provider Service Receiver Person Liable Rate of Tax Director Services Non Executive Director Company Company 12.36% Works Contract Individual, HUF, Prop. Firm, P’ Firm, or AOP Business Entity registered as Body Corporate Business Entity registered as Body Corporate 50% of 12.36% Provider 50% of 12.36% Any person located in Taxable Territory 12.36% Any Taxable Service Located in Non Taxable Territory Consult Construction Any person located in Taxable Territory info@consultconstruction.com 8
  9. 9. Notice by DGCEI Legal Services ……  Legal Services: It means any services provided in relation to advise, consultancy or assistance in any branch of law, in any manner and includes representational services before any court, tribunal or authority.  Business Entity: It means any person ordinarily carrying out any activity relating to industry, commerce or any other business or profession. Consult Construction info@consultconstruction.com 9
  10. 10. Goods Transport Agency Services Provided or agreed to be provided by a goods transport agency in respect of transportation of goods by road, where the person liable to pay freight is,— Any factory registered under or governed by the Factories Act, 1948 (63 of 1948); Any society registered under the Societies Registration Act, 1860 (21 of 1860) or under any other law for the time being in force in any part of India; Any co-operative society established by or under any law; Any dealer of excisable goods, who is registered under the Central Excise Act, 1944 (1 of 1944) Any body corporate established, by or under any law; or Any partnership firm whether registered or not under any law including association of persons; Consult Construction info@consultconstruction.com
  11. 11. Rent a Cab Services Renting of Motor Vehicle If abatement Of 60% claimed S.R. is Liable to pay @ 4.944% Consult Construction S.P. is not Liable Pay any tax If abatement is not claimed S.R. is Liable to pay @ 4.944% S.P. is Liable to pay @ 7.416 % info@consultconstruction.com
  12. 12. Consult Construction info@consultconstruction.com
  13. 13. WORKS CONTRACT ST to be discharge by the Recipient under Reverse Charge will be 50% of the Taxable Liability Original Works i.e. New Construction, all types of addition & alteration and erection, commissioning or installation of PM/Equipment etc Taxable Amount = 40% of the Total Amount Charged ST = (40*12.36%)*50% = 2.472 Consult Construction Maintenance or repairs or reconditioning or restoration or servicing of goods eg. Amc Maintenance, repairs, completion & finishing service such as glazing, plastering, floor and wall tiling etc. eg. Interior Decoration Taxable Amount = 70% of the Total Amount Charged ST = (70*12.36%)*50% = 4.326 Taxable Amount = 60% of the Total Amount Charged ST = (60*12.36%)*50% = 3.708 info@consultconstruction.com
  14. 14. In Works Contract Services, the service recipient has the option of choosing the valuation method independent of valuation method adopted by provider of service. Consult Construction info@consultconstruction.com
  15. 15. Controversy Legal Services [Rule 2(1)(cca) of Service Tax Rules, 1994] – means any service provided in relation to advice, consultancy or assistance in any branch of law, in any manner and includes representational services before any court, tribunal or authority. Consult Construction info@consultconstruction.com
  16. 16. Details in Invoice under RCM • Governing Rule: Rule 4A of the Service Tax Rules 1994. • Invoice shall indicate the name, address and the registration number of the service provider and person receiving taxable service; the description and value of taxable service provided or agreed to be provided; and the service tax payable thereon. • As per clause (iv) of sub-rule (1) of the said rule 4A "the service tax payable” thereon' has to be indicated. The service tax payable would include service tax payable by the service provider. Consult Construction info@consultconstruction.com
  17. 17. • Lets now see the journal entry part Consult Construction info@consultconstruction.com
  18. 18. Case 1 Where Service Tax has been charged fully in Invoice Expense A/c Dr Service Tax Input Credit A/c Dr Service Tax Deferred Input A/c Dr To Vendor A/c To TDS Payable A/c To Service Tax Payable A/c - Reverse Charge Case 2 Where Service Tax has not been charged in Invoice Expense A/c Dr Service Tax Deferred Input A/c Dr To Vendor A/c To TDS Payable A/c To Service Tax Payable A/c - Reverse Charge Consult Construction Debit 100.00 7.42 4.94 112.36 100.00 12.36 112.36 Credit 105.42 2.00 4.94 112.36 97.75 2.25 12.36 112.36 info@consultconstruction.com
  19. 19. Case 3 In case of Abatement ( e.g. 40%) Expense A/c Dr Service Tax Input Credit A/c Dr To Vendor A/c To TDS Payable A/c To Service Tax Payable A/c - Reverse Charge Consult Construction Debit 100.00 4.94 104.94 Credit 98.00 2.00 4.94 104.94 info@consultconstruction.com
  20. 20. Rule 7 of POT • Date of Payment • Where payment for service is not made within period of 6 months of date of invoice, POT shall be determined as per General Rule (Rule 3) Consult Construction info@consultconstruction.com
  21. 21. Consult Construction info@consultconstruction.com
  22. 22. Consult Construction info@consultconstruction.com
  23. 23. Consult Construction info@consultconstruction.com
  24. 24. Subscribe to our E-Bulletin Call at 9426024975 email - info@consultconstruction.com • VAT and Service Tax updates for the construction / Project sector companies. • Legislative changes and major case laws under the State VAT Laws and under Service Tax law affecting the construction /Project Sector. • In addition our brief analysis and comments on the various developments. Consult Construction info@consultconstruction.com

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