Rent-a-cab - Partial reverse charge
MANY assessees who engage the services of Rent-a-Cab operator service are confused a lot on their liability under partial reverse charge with effect from 01.07.2012. We are flooded with mails asking to explain the liability under various situations. For the benefit of all the assessees, the issue is explained here:
As per Sl No 7(a) and (b) of Notification No , there are two situations depending on whether the service provider is availing abatement or not.
1. If the service provider is availing 40% abatement, the service receiver is liable for complete payment of tax.
Eg: ABC Transports is availing abatement for payment of service tax. He billed M/s XYZ Rs 20,000/- for a cab. The Bill will be:
Cab charges : Rs 20,000/-
ST ( 12.36% on 40% of Rs 20,000) = Rs 989/-
Liability on XYZ = Rs 989/- ( i.e., 100% of the tax amount of Rs 989/-)
Liability on ABC Transports = 0
2. If the service provider is not availing the 40% abatement, the Bill will be
Cab charges : Rs 20,000/-
ST ( 12.36% on Rs 20,000/-) = Rs 2,472/-
Liability on XYZ = 40% of Rs 2,472/- = Rs 989/-
Liability on ABC Transports = 60% of Rs 2,472/- = 1483
In both the situations, it can be seen that the liability on XYZ is only Rs 989/-
(Note: The partial reverse charge is applicable only if the service is provided by any individual, Hindu Undivided Family or partnership firm, whether registered or not, including association of persons, located in the taxable territory to a business entity registered as body corporate, located in the taxable territory - Under the partial reverse charge, the service receiver has the option of forgoing the abatement benefit, as clarified in Para 10.1.6 of the Education Guide. In other words, XYZ can also have the option of paying service tax on full Rs 20,000/- billed to them at 12.36%, irrespective of the amount of service tax paid by the service provider)