How to calculate and pay service tax?

In continuation to our previous post service tax registration payment and return; we wish to give you some more information about service tax.  In this post you can read some regular questions and its answers.

Shall I pay service tax on billed amount or amounts actually received?

How are you paying service tax?   On billed amount or on receipt? Many are paying service tax on billed amount and unaware of the concept ‘tax payment on amount actual received’.   There is no problem paying service tax on billed amount. But this is not the correct way for the payment of service tax. A service provider is liable to pay service tax’ only when he receives the consideration for his service. Thinking practically it is not fair paying service tax on service provided; that has never received payment. I will explain this with an example.

ABC Ltd billed Rs 500000.00 (Inclusive of service tax) on 1st May 2009. Payment received Rs 300000.00 on 14th July and Rs 200000.00 on 25th August.

From the above example let’s find out the service tax liability on each month.

Date Bill amount Payment received Tax liability Service tax payment date without interest.
01/05/2009 500000.00 0 0 0
14/07/2009 0 300000.00 28014.00 05/08/2009
25/08/2009 0 200000.00 18677.00 05/09/2009

However there is an exception for this clause. Transaction between associated enterprises; service tax is payable even if the consideration for service provided is received or not. The service tax is payable immediately after debiting /crediting in the books of account.

How do we find out the tax liability on partly received payments?

From the above example Rs 500000.00 is inclusive of service tax. This means ABC LTD charged a gross amount of Rs 453309.00. And a service tax Rs 46691 in their service bill.

How do you calculate tax liability when you receive a part payment? Here you are getting RS 300000.00 as a part payment. So our liability is calculated by making back calculation on Rs 300000.00 use the following formula.

Since tax liability is on amount received; shall I liable to pay service tax on advance received?

Yes, any advance received is immediately taxable even if the service is provided later.

Advance received but service is not provided due to some reason, is service tax refundable?

Yes, the service tax paid in advance shall be refunded as service tax not payable on service not provided.

I am a new service provider, my service crossed Rs 10 Lac this year. Shall I pay service tax on total amount of service provided during the year or Service provided after ten Lac?

Your service is taxable only when it crosses 10 Lac limit. But the liability is on only amount after 10 Lac make it more clear refer below chart of ABC Ltd started a new business from 1st April 2009

Date Bill No Bill Amount Payment Recd Registration Tax Liability
01/04/2009 1001 250000.00 250000.00 No 0
28/08/2009 1002 450000.00 450000.00 No 0
01/01/2010 1003 210000.00 210000.00 Yes ( Total amount received  crosses Rs 9Lac) 0
31/03/2010 1004 250000.00 250000.00 Al ready registered Rs 160000 Is taxable @10.3%

In the above example Rs 160000.00 is chargeable to tax @10.3% in bill no 1004.

In the above example ABC LTD service is taxable from the 1st day April in the next financial year 2010-11. As last year; their service crossed the limit Rs 10 Lac and started paying tax.

How to find out the Service tax liability if tax is not collected from customer?

It is the liability of the service provider to pay service tax even if tax is not collected from client. In such cases total bill amount is considered as inclusive of tax and liability is ascertained by making back calculation

To find out value of taxable service use the following formula

You can calculate service tax liability from the value of taxable service or assessable amount.

For example you have billed Rs 100000.00 and no tax is collected from customer your taxable amount and service tax is calculated as follows

I cannot assess the service tax liability for a particular month or Quarter. In such situation; how to pay service tax?

If you cannot assess the service tax liability for a particular month or quarter for some reasons, you can pay service tax on provisional basis by giving a request to Assistant/Deputy commissioner of central excise in writing .after getting such request the concerned authority may let you pay tax on provisional basis. Such assessee has to file memorandum in Form ST3A showing the details of actual service tax deposited and actual service tax liability of each month or quarter.

49 Responses to “How to calculate and pay service tax?”

  1. Suresh says:

    Hi Sir,

    Could you please confirm it. Shall i pay service tax on Billed amount or on received amount
    from 01.04.2012..
    i here some news we should pay service tax on billed amount not on received amount
    could you please confirm it.

  2. deva says:

    Hello,

    we registered a consultancy firm in Nov 2011. In Jan 2012 we got the service tax regn done.

    From Jan 2012 to Apr 2012 we had no transaction. In May 2012, we billed a cllient for 40,000.00/- we have not paid any service tax till date.

    Could you please inform how much tax liability we have?

    Thanks,
    Deva

  3. srinivas says:

    sir i am an accountant i would like to know how to calculate service tax on amount received on flat which is fully owned and not for development

  4. Gaurav says:

    I have one doubt.
    How does Restaurant charge Service Charge and Service Tax

    Say my Bill was 1000
    so the Service charge will be 100 @10%
    Now they charge Service Tax @ 4.94% = 54.34 (1000 billd amt + 100 Service charge)

    my question is should they charge Service Tax on Service Charge i.e. 100 or on entire Amount.

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