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RECENT CHANGES IN REVERSE CHARGE MECHANISM

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RECENT CHANGES IN REVERSE CHARGE MECHANISM
Dr. Sanjiv Agarwal By: Dr. Sanjiv Agarwal
July 1, 2015
All Articles by: Dr. Sanjiv Agarwal       View Profile
  • Contents

New Reverse Charge Mechanism (w.e.f. 1.7.2012)

Under new reverse charge mechanism w.e.f. 1-7-2012, the service receiver is liable to pay tax, without any benefit of threshold exemption alongwith service provider also liable for certain percentage on case to case basis (w.e.f. 1.7.2012 as per Notification No. 30/2012-ST dated 20.6.2012 as amended by Notifications No. 45/2012-ST dated 7.8.2012 and 10/2014-ST dated 11.7.2014 and Notification No. 7/2015-ST dated 1.3.2015).

Under the reverse charge mechanism, there is no option to service provider to pay Service Tax on his own as under normal course. Also, under partial reverse charge, the law does not provide the option of discharging Service Tax liability either by service provider or by service receiver. Both are under statutory obligation to comply with the requirements of reverse charge mechanism as notified.

 

Liability to pay under Reverse Charge by Service Receiver

Under Partial Reverse Charge (Proportional)

Under full reverse charge (100%)

  • Renting of motor vehicles to carry passengers
  • Manpower supply & security services
  • (up to 31.03.2015)
  • Works contracts
  • insurance business services by agents
  • Services by recovery agents
  • goods transportation by road
  • sponsorship
  • arbitral tribunals
  • legal services
  • company body corporate director's services
  • services provided by Government/ local authority excluding specified services
  • services provided by persons located in non-taxable territory to persons located in taxable in territory.
  • Aggregator services (w.e.f. 1.3.2015)
  • Manpower supply and security services (w.e.f. 1.4.2015)
  • Lottery selling / marketing agent's services (w.e.f. 1.4.2015)
  • Mutual funds agent / distributor services (w.e.f. 1.4.2015)

New Definitions

Aggregator

As per clause 2(aa) of Service Tax Rules 1994, 'aggregator' means a person, who owns and manages a web based software application, and by means of the application and a communication device, enables a potential customer to connect with persons providing service of a particular kind under the brand name or trade name of the aggregator.

Brand Name or Trade Name

As per clause 2(bca) of Service Tax Rules, 1994, 'brand name or trade name' means, a brand name or a trade name, whether registered or not, that is to say, a name or a mark, such as an invented word or writing, or a symbol, monogram, logo, label, signature, which is used for the purpose of indicating, or so as to indicate a connection, in the course of trade, between a service and some person using the name or mark with or without any indication of the identity of that person.

Amendments in Reverse Charge Mechanism (Vide Notification No. 7/2015-ST dated 1.3.2015)

  1. Services provided by a person involving aggregator in any manner shall be under 100 percent reverse charge mechanism. Aggregator has been defined for this purpose. (w.e.f. 1.3.2015)
  2. Liability to discharge Service Tax under reverse charge has been shifted from receiver of service to person liable for paying Service Tax other than the service provider (w.e.f. 1.3.2015).
  3. Manpower supply and security services have been brought under full reverse charge instead of partial reverse charge @ 75: 25 basis (w.e.f. 1.4.2015)
  4. Services provided by -

(i) mutual fund agents, mutual fund distributors; and

(ii)  agents of lottery distributor

have been brought under reverse charge consequent to withdrawal of the exemption on such services. Accordingly, Service Tax in respect of mutual fund agent and mutual fund distributor services shall be paid by the assets management company or, as the case may be, by the mutual fund receiving such services. In respect of agents of lottery, Service Tax shall be paid by the distributor of lottery.(w.e.f. 1.4.2015)

  1. Definition of person liable to pay Service Tax has been incorporated for aggregator, mutual fund and lottery distributors / selling agent.

Reverse Charge at a Glance

Description of Service

Liability of (%)

Nature of Person

 

Service Provider

Service Receiver

Service Provider

Service Receiver

Services provided by insurance agent to any person carrying on insurance business

0%

100%

 

Insurance Company

Services of mutual fund agent or distributor, to a mutual fund or asset management company

0

100%

Asset management company or mutual fund

Any person

Services of selling or marketing agent of lottery tickets to a lottery distributor or selling agent

0

100%

Selling or marketing agent

Distributor or selling agent of lottery

Services provided by recovery agents

0%

100%

 

Banking

company/

financial

institution,

non-banking

financial

company

 

GTA : Freight payer in specified cases of Consignor/Consignee

0%

100%

 

Specified

consignor/

consignee

Sponsorship service

0%

100%

 

Body Corporate/ Partnership firm

Service provided by

0%

100%

 

Business Entity

(i)    Arbitral tribunal

 

 

 

 

(ii)   Individual advocate

 

 

 

 

(iii)   Support service provided by any government/local authority

 

 

 

 

Service provided by director to company/body corporate

 

 

Individual

Company

Renting/hiring any passenger motor vehicle:

 

 

Individual/ HUF/Prop/ Partnership

Company/ business entry

(a)    On abated value

0%

100%

-do-

-do-

(b)    On Non abated value

 

 

 

 

(i)   up to 30.9.2014

60%

40%

-do-

-do-

(i)   up to 1.10.2014

50%

50%

-do-

-do-

Supply of manpower or security services

 

 

 

 

  1. up to 31.3.2015

25%

75%

-do-

-do-

  1. w.e.f. 1.4.2015

0%

100%

-do-

-do-

Work contract services

50%

50%

-do-

-do-

Any service [import of service]

0%

100%

Located in

non-taxable

territory

Located in taxable territory

Services involving an aggregator in any manner

0

100%

 

Aggregator or his agent / representative

 

By: Dr. Sanjiv Agarwal - July 1, 2015

 

Discussions to this article

 

Manpower Supply recent changes is as follows :

(iii) against Sl. No. 8, in column (3) and column (4), for the existing entries, the entries “Nil” and “100%” shall respectively be substituted;

Dr. Sanjiv Agarwal By: george thomas
Dated: July 2, 2015

Dear Sir ,

We apologize for the mistake .

Thanks & Regards ,

CA Neha Somani

Dr. Sanjiv Agarwal By: Dr. Sanjiv Agarwal
Dated: July 2, 2015

 

 

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