Reverse charge mechanism

REVERSE CHARGE MECHANISM

Sandesh Mundra & Associates, Prepared by - Nikita Lakhotia

What is Reverse Charge? Generally, service provider is liable for payment of service

tax. CG notified in terms of sec 68 that even service receiver is

also liable to pay service tax. This is what we term as Reverse Charge Mechanism.


36/2004

30/2012

7/2015

Service Covered• In relation to communication through Telephone or

pager or telegraph or telex• General Insurance Business• Insurance Service by Insurance Agent• Goods Transport Agency Services

Replaced notification no. 36/2004 and covered additional services under RCM

Amendment of notification no. 30/2012 and added some more services under the regime of Reverse Charge


Point of taxationPOT under Reverse Charge

In case of advance payment

Date of payment

In case of service

provide & invoice

received

Amount paid within 3 months

Date of such payment

Amount not paid within 3

months

Date of invoice

following the said period of 3 monthsSandesh Mundra & Associates,

Prepared by - Nikita Lakhotia

Services Covered :-Service Name Service Name

Insurance Services Goods Transport Agency Services

Sponsorship Services Director Services

Legal Services Government Services

Rent – a – Cab Services Manpower Supply Services

Works Contract Services Security Services

Recovery Agent Services Mutual Fund Services

Lottery Services Aggregator Services

Arbitral Tribunal Services Import of Services


Insurance Services

Service Provider = Insurance Agent

Service Receiver = Person Carrying

on Insurance Business

RCM Applicabl

e


Goods Transport Agency Services

• Goods Transport Agency

Service Provider

• As Mentioned in Note

Service Receiver • Applicabl

e

RCM

Note… Any body Corporate registered under

any law Any partnership firm including LLP and

AOP Any excisable goods dealer registered

under Central Excise Act, 1944 Any co-operative society established

under any law Any society registered under Societies

Registration Act, 1860 Any factory registered under Factories

Act,1948

Exemption… Single Consignment - Rs. 1500 More than one consignment – Rs. 750Sandesh Mundra & Associates,


Sponsorship Services

Service Provider Any Person

Service Receiver Partnership Firm or Body Corporate

Rate of Tax (w.e.f. 15-11-2015)

14.5%

“sponsorship” includes naming an event after the sponsor, displaying the sponsor’s company logo or trading name, giving the sponsor exclusive or priority booking rights, sponsoring prizes or trophies for competition; but does not include any financial or other support in the form of donations or gifts, given by the donors subject to the condition that the service provider is under no obligation to provide anything in return to such donors;


Director ServicesService

Provider = Director

(Individual)

Service Receiver = Company

RCM Applicabl

e

He should not be into

Employee-Employer

Relationship


Legal Services Provided by an advocate or firm of advocates Includes any Service of Advice, Consultancy,

Assistance or Representational Service before any court, tribunal or authority

Received by business entity i.e. Partnership, BOI, LLP, Body Corporate, Individual

(“Business entity means any person ordinarily carrying out any activity relating to industry, commerce or any other business, or

profession”) Sandesh Mundra & Associates, Prepared by - Nikita Lakhotia

Legal Services

Let us Understand this with the help of the table illustrated :Provider Receiver Applicability

Service Provided by an Advocate or Firm

of Advocate

Service receiver being an Advocate or Firm of Advocate

Exempt as per Notification No.

25/2012 Entry No. 6(b)(i)

Service Receiver being business

entity but turnover in PFY upto Rs. 10

Lakhs

Exempt as per Notification No.

25/2012 Entry No. 6(b)(iii)

Service Receiver being Business

EntityRCM Applicable @ 14.5% to receiverSandesh Mundra & Associates, Prepared by -

Nikita Lakhotia

Government Services

Law upto 31-03-2016 Support service provided by Government/Local Authority to Business Entity

(Partnership, LLP, BOI, Body Corporate, Individual)

Law wef 01-04-2016 Any service provided by Government/Local Authority to Business Entity

(Partnership, LLP, BOI, Body Corporate, Individual) Exemption : Services provided by Government or a local authority to a business

entity with a turnover up to rupees ten lakh in the preceding financial year - Notification No. 7/2016 (w.e.f. 01-04-2016)


Exclusion : Government Services covered under Negative List :

Service in relation to aircraft or vessel Transport of goods or passenger Services by department of post

Following service provided by government are not included under RCM Renting of Immovable Property

Services provided by Companies or corporations formed by the government are not considered as the service provided by government.

Government Services


Provider not Availing CENVAT

Credit(ST not charged in

invoice raised)

Provider Availing CENVAT Credit(ST charged in invoice raised)

Provider = Ind, HUF, P’ship, LLP,

AOPReceiver = Body

Corporate

SR liable to pay 100%

tax(On abated

value)

SP liable to pay 50%

tax(On non abated value)

SR liable to pay 50%

tax(On non abated value)

Renting of Motor Vehicle Services

Rate = 5.8%

Rate = 7.25%

Rate = 7.25%


Manpower Supply Services

Service Provider = Individual, HUF, Partnership, AOP, LLP

Service Receiver = Business Entity Registered as Body Corporate

RCM Applicable @ 14.5%Sandesh Mundra & Associates, Prepared by - Nikita Lakhotia

Works Contract ServicesDescription of

ServiceService Provider(Portion Taxable)

Service Receiver(Portion Taxable)

Effective Rate to Service Provider

Effective Rate to Service Receiver

Original Work

Individual, HUF,

Partnership, AOP,

LLP(50%)

Business Entity

Registered as Body Corporat

e(50%)

Rate = 2.90%(100*50%*40%*14.

5%)

Rate = 2.90%(100*50%*40%*14.

5%)Only Labour

PortionRate = 7.25%

(100*50%*14.5%)Rate = 7.25%

(100*50%*14.5%)Maintenance,

Repair, Reconditioning, Completion &

Finishing Services

Rate = 5.08%(100*50%*70%*14.

5%)

Rate = 5.08%(100*50%*70%*14.

5%)

Sandesh Mundra & Associates, Prepared by – Nikita Lakhotia

Security Services

Service Provider

Individual, HUF, Partnership, LLP, AOP

Service ReceiverBusiness Entity Registered as body corporate

RCM

Applicable @ 14.5% to Receiver

“Security agency” means any person engaged in the business of rendering services relating to the security of any property, whether movable or immovable, or of any person, in any manner and includes the services of investigation, detection or verification, of any fact or activity, whether of a personal nature or otherwise, including the services of providing security personnel.


Recovery Agent Services

Service Provider

Service receiver

Payable by Service Provider

Payable by Service Receiver

Effective Date

Recovery Agent

NBFC, Banking Company, Financial Institutions

NIL 100%(14.5%)

July 11, 2014

Sandesh Mundra & Associates, Prepared by – Nikita Lakhotia

Mutual Fund Services

“A”A Mutual

Fund Agent

“B Ltd”Mutual Fund Management

Company

Provide Service to

Tax

B Ltd is liable to pay

service tax


Lottery Services

Provided by lottery selling or marketing agentProvided to Lottery distributor or selling agentEffective Date being April 1, 2015Liability arises 100% on service receiver


Aggregator Services

“Aggregator means a person who runs 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 under the brand name or trade name of the aggregator”

Service provided by a person involving an aggregator in any manner. For eg. if a person pays Rs. 100 to aggregator for availing cab service and

later on the aggregator pays Rs. 90 to the cab owner and retain Rs. 10 as his commission, then service tax will be paid by aggregator under reverse charge on Rs. 100

Further if whole amount of Rs. 100 is received by cab owner and later on he pays the commission of Rs. 10 to aggregator, the amount at which aggregator is liable to pay service tax under reverse charge is Rs. 100


Aggregator Services Presence of

Aggregator

Physically present in India

Aggregator of the service

Not present in India

Having representative in

India

Any person representing the

aggregator for any purpose shall be

liable to service tax

Not having any representative in

India

Any person appointed by the

aggregator for the purpose of paying

service tax shall be liableSandesh Mundra & Associates,


Arbitral Tribunal Services

Service Provider

= Arbitral Tribunal

Service Receiver

= Business

Entity

RCM Applicabl

e to Business

Entity

Note : Fees paid to any court or tribunal established under any law is excluded from the definition of service as per section 65B(44)(c)


Import of Services

Provide service

to

Taxable territory

Non-Taxable Territory

“A”Service provider

“A”Service Receiver

“B”Service provider

“B”Service Receiver

Receive service from

TaxExport Service -

Exempt – Subject to Conditions specified

Tax“A”

Liable to pay service tax


Person paying service tax under RCM can avail CENVAT Credit for services provided.

CENVAT Credit can be availed for output services only when the payment is made for service tax.

Benefit of CENVAT cannot be availed for discharging ST liability under Reverse Charge Mechanism.

CENVAT Credit Availment
