Swacch Bharat Increased Service Tax

Recently Government of India issued Notification regarding the Service Tax Rate which increased due to Swaccch Bharat Cess. so we guide you today What is Swacch Bharat Cess and How its effect on service tax rate which is increased from 14% and .05% additional on services.

Swacch Bharat Cess Increase Service Tax Rate 2015

So We Present in FAQ Manner so you can understand properly about the Service Tax and also the Swacch Bharat Cess which is Introduce by government of India.

  1. Coverage of Services :- SBC shall not be leviable on services which are
    • exempt from service tax by a notification, or
    • otherwise not leviable to service tax.
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  2. Coverage of Persons :- 
    Service Provider
    The cess is to be collected and paid by any service provider:
    i. who is presently collecting and paying Service Tax and
    ii. who may be required to collect Service Tax in the future (i.e. when the value of taxable services provided exceeds Rs. 10 Lakhs)
    Service Recipient
    SBC would be applicable on all taxable services. Hence, even if a service is falling under Reverse Charge mechanism, the service recipient is liable to pay SBC. Moreover, unlike service provider, service recipient cannot go for exemption of Rs. 10 Lakhs under Small Service Provider Exemption Notification – 33/2012.
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  3. What is the rate of SBC?
    The government has issued two notifications on 6th November 2015 – one after the other.
    i. Notification Number 21/2015: SBC shall be levied at the rate of 2% (as per Chapter VI of the Finance Act 2015)
    ii. Notification Number 22/2015: SBC in excess of 0.5% is exempted.

    Net effect is that SBC shall be levied and collected at 0.5% itself.
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  4. On what value, SBC would be applied?
    SBC is levied on the “Value of Taxable Services” and NOT on the “Service Tax” component unlike the general character of any CESS.
    Example:

    Chartered Accountant Service provided for Rs.1,00,000

    Particulars Amount
    Service Tax = 1,00,000x 14% Rs. 14,000
    Swachh Bharath Cess = 1,00,000 x 0.5% Rs. 500
    Total Tax Rs. 14,500

    Hence, even though a “Cess”, SBC shall not apply on the Service tax amount. Instead it shall be applied on the Value of Taxable Service.

  5. How will ongoing services be effected?
    If the Person Liable to Pay Service Tax is Service Provider
    The levy of SBC is considered as a change in effective rate of tax in terms of Point of Taxation Rules, 2011.
    In the following situations there shall be no levy of SBC for a service provider:
    i. If the service has already been provided as on 15th Nov. 2015: Either the bill should have been raised before 15th Nov. 2015or the payment should have been received before 15th Nov. 2015
    ii. If the service has not been provided as on 15th Nov. 2015: Both the bill should have been raised and the payment should have been received before 15th Nov. 2015
    In any other situation, there shall be levy of SBC along with Service Tax
    The impact of introduction of SBC on different situations is as follows as per Rule 4 of Point of Taxation Rules, 2011 (the cut-off date being 15th November 2015):

    Date of Completion of Service Date of Issuance of Invoice Date of Receipt of Payment Effective Rate of Service Tax
    Before 15th Nov. 2015 After 15th Nov. 2015 After 15th Nov. 2015 14.5%
    Before 15th Nov. 2015 Before 15th Nov. 2015 After 15th Nov. 2015 14%
    Before 15th Nov. 2015 After 15th Nov. 2015 Before 15th Nov. 2015 14%
    After 15th Nov. 2015 Before 15th Nov. 2015 After 15th Nov. 2015 14.5%
    After 15th Nov. 2015 Before 15th Nov. 2015 Before 15th Nov. 2015 14%
    After 15th Nov. 2015 After 15th Nov. 2015 Before 15th Nov. 2015 14.5%
    If the Person Liable to Pay Service Tax is Service Recipient
    In case of reverse charge services, point of taxation as per Rule 7 of Point of Taxation Rules, 2011 would be the date on which consideration is paid to service provider.
    Hence, there would be no levy of SBC if the consideration is paid to the Service Provider before 15th Nov. 2015. However, if the consideration is paid to the Service Provider on or after 15th Nov. 2015, SBC would be levied along with Service Tax (irrespective of the fact whether the service is provided before 15th Nov. 2015)

  6. In case of services covered by abatement, what would be effective rate of tax?
    Section 119 provides that SBC would be levied and collected as service tax. Further, it provides that provision of Chapter V of the Finance Act, 1994 would apply to SBC as they apply to service tax. The abatement notification is issued under Section 93 of Chapter V of the Finance Act, 1994. Thus, Abatement Notification – 26/2012 would apply for SBC also in the same manner as apply for service tax.
    Hence, the effective rate of tax on all Abatement Services would be [14.5% * Effective Rate under Abatement Notification – 26/2012]. For example, the effective rate of tax on GTA service would be [14.5%*30%] = 4.35% (and NOT 4.2%).
    It is important to note that the same would be treated as Change in Effective Rate of Tax (Refer Question No. 5)
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  7. In case of services covered by special valuation provision (Works Contract Service and Restaurant / Outdoor Catering Service) what would be effective rate of tax?
    Tax needs to be applied on the value so arrived at the rate of 14.5%. Hence, the effective rate of tax on such services covered by special valuation provision would be [14.5% * Effective Rate under such Special Valuation Provision]. For example, the effective rate of tax in case of original works would be [14.5% * 40%] = 5.8% (and NOT 5.6%) and other than original works would be [14.5% * 70%] = 10.15% (and NOT 9.8%).
    It is important to note that the same would be treated as Change in Effective Rate of Tax (Refer Question No. 5)
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  8. Whether SBC would be applicable on services covered by Rule 6 of Service Tax Rules (i.e. Air Travel Agent Service, Life Insurance Premium Service, Money Changing Service and Promotion of Lottery Tickets Service)?
    SBC will NOT be applicable on such services as special rates are given for such services. The writer expects that consequential amendments under the aforesaid rules may come to increase these special rates correspondingly. As of now, the old special rates will continue till any further notification amending these special rates.
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  9. What shall be date of payment of SBC?
    The collection and levy of SBC shall be exactly like that of Service Tax. Even the provisions relating to interest, penalty, refunds and exemptions shall remain the same for SBC as is applicable to Service Tax.
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  10. Filing of Return
    The existing ST-3 Return for Service Tax would get altered to include provisions for SBC as well. This would be notified sometime later (possibly before 31st March 2016 as the next due-date of filing of return is 25th April 2016).
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  11. Availing or Booking CENVAT Credit in relation to SBC paid on Input Service
    CENVAT Credit on SBC paid on Input Service will NOT be available as there is no corresponding amendment in the CENVAT Credit Rules, 2004.
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  12. SBC on Excise Duty
    SBC is levied ONLY ON SERVICE TAX. SBC will not be levied on Excise Duty. Thus, the rate of Excise Duty will remain as 12.5% whereas the rate of Service Tax will increase to 14.5%.