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Financial advisors should Know Service Tax compliance before 31st March 2017

While Service Tax has come under forward charge mechanism, there is still huge ambiguity for each advisor around the compliance with the same.

Below we list out a few practical Q&A, relevant to the financial advisors, before 31st March 2017

Query 1: What is the Point of Taxation under Service Tax Act?

Ans:

Point of Taxation prescribed as per rule 3 of Point of Taxation Rule 2011 as follows:
(a) Where Invoice is issued within 30 days from completion of service

(i) Date of invoice or; (ii) Date of payment received, whichever is earlier

(b) Where Invoice is not issued or issued after 30 days from completion of service

(i) Date of Completion of service or; (ii) Date of payment received, whichever is earlier

Query 2: Due-Date for payment of Service Tax is 31st March 2017. Which are the services for which this due date is applicable?

Ans:

(a) Due-date for payment of Service Tax (in case of Partnership Firms, LLPs, Individuals, Proprietorship concerns and HUFs) for Quarter ended March 2017 is 31st March 2017.

Due-date for payment of Service Tax for the month of March, (in case of Companies, Associations, Trusts &      Societies) those who are liable to pay service tax monthly is 31st March 2017

(b)Services Rendered during the period, are liable for payment of service tax for the period on or before 31st March.

Hence in case of individuals, HUFs and Partnership firms, Service Tax on services rendered for the Quarter ended March is to be paid on or before 31st March.

In case of companies, service tax on services rendered for the month of March is to paid on or before 31st March.

Query 3: How do I compute Service tax for commission pertaining to the month of March? Commission is computed on daily average assets and daily NAV is released only in the evening?

Ans:

Financial Advisor will have to estimate the amount of service tax on services taxable (in light of the Point of Taxation as mentioned in Query 1) on estimates and pay service tax by 31st March. While it is not possible to estimate accurately as market is volatile and hence NAV fluctuates, one has to pay service tax on or before 31st March based on estimation. Delay will attract interest @ 18% p.a.

Query 4: Is there any relief from paying service tax on or before 31st March?

Ans:

As per fourth proviso to Rule 6(1) of the Service Tax Rules, in case of Individuals, HUFs, Partnership firms, whose aggregate value of taxable services provided is Rs. 50 Lakh or less in the previous financial year, then the service provider shall have the option to pay tax on taxable services provided or to be provided by him upto a total of Rs. 50,00,000/- in the current financial year, by the date on which the actual payment is received ie. on receipt basis. As per sub-clause (cd) of Rule 2 to Service Tax Rules, partnership firm includes a Limited Liability Partnership (LLP).

In case of companies no such relief available. Companies are required to pay Service Tax on or before 31st March.

However, such method of accounting has to be followed consistently and cannot be applied exceptionally for the quarter ended March.

Query 5: What is Receipt Cash basis and Mercantile / Accrual basis of accounting?

Ans:

Maintaining books on receipt basis implies accounting for service only if payment for the same has been received.ÿ

Merchantile basis accounting implies accounting for services rendered during the period irrespective of receipt of payment.

Query 6: What is the threshold limit to register for service tax? How is it computed?

Ans:

Financial Advisors have come under the forward charge mechanism from FY 16-17. Hence, being first time assessee liable to service tax, an advisor has to register for Service tax and obtain Service Tax registration number when the value of taxable services exceeds Rs. 9,00,000/-. An advisor is liable to pay Service Tax if the aggregate value of taxable services during the year exceeds Rs. 10,00,000/-.

However, it is to be noted that the threshold of 10,00,000/- for normal assessee (not first time assessee) is considered based on the threshold value in the preceding financial year.

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