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By Sunil SinghM. V. Damania and Co.
Chartered Accountants 01st February,2013
Introduction of Reverse Charge Mechanism (RCM)
What do you mean by RCM?
Applicability
Notification No. 30/2012- ST dated 20/06/2012
Categories covered
Services under full reverse charge mechanism (RCM)
Services under partial reverse charge mechanism (RCM)
List of services under full Reverse Charge MechanismSr No.
Nature of services Description of services
1) Insurance Agents services Services provided or agreed to be provided by an insurance agent to any person carrying on insurance business
2) Goods Transport agency services (GTA)
Services provided by GTA in relation to transportation of goods
by road
3) Sponsorship Services Sponsorship services to any Bode corporate or Partnership firm located
in taxable territory
continued
Sr No. Nature of services Description of services
4) Legal Services Legal services by Individual advocate or a firm of advocates including arbitral services to business entity with turnover exceeding Rs.10 lakhs in the preceding
year
5) Government services
Support services by Government or local authority (excluding renting of
immovable property) 6) Director Services Services provided or agreed to be
provided by a Director of a company to a
said company
Sr No.
Nature of services Description of services
7) Provision of Taxable service from non-
taxable territory
Any taxable service where the Service provider is located in a non taxable territory and service recipient located in
a taxable territory
continued
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;
Relevant aspects relating to the above are briefed here as below :
Transportation of fruits, vegetables, eggs or milk by road in a goods carriage is exempt from Service Tax. (Refer point no. 21 of notification no. 25/2012).
No Service Tax is to be paid when Gross Amount charged on all consignments transported in a goods carriage does not exceed Rs. 1500/-.
No Service Tax is to be paid when Gross Amount charged on individual consignment transported in a goods carriage does not exceed Rs. 750/-
Taxable value of Goods Transport Agency Service shall be exempt in excess of 25%. In other words, abatement of 75% is available.
Services tax paid on service provided for transport of goods from inland container depot to the port of export can be claimed as refund.
Goods Transport Agency
Illustrations
XYZ Factory Gurgaon
Haryana
Liable to pay freight
Registered Dealer a partnership firm in Bhopal in M.P
ABC Transport
Delhi
Registered Dealer a partnership firm in Jammu Non Taxable Territory liable to pay freight
XYZ Factory gurgaon Haryana
Back
Legal Services
Legal services provided by advocates or partnership firms of advocates are exempt from service tax when provided to the following: An advocate or partnership firm of advocates
providing legal services. any person other than a business entity. a business entity with a turnover up to rupees
ten lakh in the preceding financial year.
However, in respect of services provided to business entities, with a turnover exceeding rupees ten lakh in the preceding financial year, tax is required to be paid on
reverse charge by the business entities. Back
PQRA Servicereceiver
ABC A Service provider
Pro
vid
ing
taxab
le s
erv
ice to
DEFA Service Receiver
XYZ A ServiceProvider
Providing Taxable service to
Taxable Territory
Non
Taxable Territory
Providing taxable services to
Partial Reverse Charge Mechanism
?
List of services under partial reverse charge mechanism
Sr.No Nature of services
Description of services
% of Ser tax payable by S.P.
% of Ser Tax payable by S.R.
1) Manpower Supply
Service
Supply of manpower for any purpose including security services provided to
company
25% 75%
2) Rent a cab services
Renting of Passenger vehicles With abatement Without abatement
Nil60%
100%40%
Continued
Sr.No Nature of services
Description of services % of Ser tax payable by S.P.
% of Ser Tax payable by S.R.
3) Works Contract Service
Works Contract service
provided to company 50% 50%
Basic Condition in Partial RCM
Service Provider Individual HUF Partnership Firm AOP
Service Receiver Business entity
registered as body corporate
He should be located in taxable territory
Back
Rent a Cab Services
Renting of Motor Vehicle
If abatementOf 60% claimed
If abatement is not claimed
S.R. is Liable topay @ 4.944%
S.P. is not LiablePay any tax
S.R. is Liable topay @ 4.944%
S.P. is Liable topay @ 7.416 %
Original Works i.e. New Construction, all types of addition & alteration and erection, commissioning or installation of PM/Equipment etc
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
Taxable Amount = 40% of the Total Amount
Charged
Maintenance or repairs or reconditioning or restoration or servicing of goods eg. Amc
Maintenance or repairs or reconditioning or restoration or servicing of goods eg. Amc
Taxable Amount = 70% of the Total Amount
Charged
Taxable Amount = 70% of the Total Amount
Charged
Maintenance, repairs, completion & finishing service such as glazing, plastering, floor and wall tiling etc. eg. Interior Decoration
Maintenance, repairs, completion & finishing service such as glazing, plastering, floor and wall tiling etc. eg. Interior Decoration
Taxable Amount = 60% of the Total Amount
Charged
Taxable Amount = 60% of the Total Amount
Charged
ST to be discharge by the Recipient under Reverse Charge will be 50% of the
Taxable Liability
ST to be discharge by the Recipient under Reverse Charge will be 50% of the
Taxable Liability
ST = (40*12.36%)*50% =
2.472
ST = (40*12.36%)*50% =
2.472
ST = (70*12.36%)*50%
= 4.326
ST = (60*12.36%)*50% =
3.708
WORKS CONTRACT
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.
Case 1 Where Service Tax has been charged fully in Invoice Debit Credit Expense A/c Dr 100.00 - Service Tax Input Credit A/c Dr 7.42 -Service Tax Deferred Input A/c Dr 4.94 -
To Vendor A/c - 105.42To TDS Payable A/c - 2.00To Service Tax Payable A/c - Reverse Charge - 4.94
112.36 112.36
Case 2 Where Service Tax has not been charged in InvoiceExpense A/c Dr 100.00 - Service Tax Deferred Input A/c Dr 12.36 -
To Vendor A/c - 97.75To TDS Payable A/c - 2.25To Service Tax Payable A/c - Reverse Charge - 12.36
112.36 112.36
Case 3 In case of Abatement ( e.g. 40%) Debit Credit Expense A/c Dr 100.00 - Service Tax Input Credit A/c Dr 4.94 -
To Vendor A/c - 98.00To TDS Payable A/c - 2.00To Service Tax Payable A/c - Reverse Charge - 4.94
104.94 104.94
Important Points relating to RCM
Cenvat can not be availed for discharging the ST Liabilities on RCM
ST Paid under RCM can be utilize towards the discharge ST on output services
Threshold exemption of upto Rs.10 Lac is not applicable here in RCM except Legal services
Allowed Refund of unutilized cenvat credit availed from input services as per Rule 5B of Central Exice
Rules,2004
ThankYou