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Service Tax for Distributor
Investment Basics

Service Tax For Distributors

You can now have all queries answered on Service Tax applicability to Mutual Fund distributors under forward charge mechanism w.e.f. April 01, 2016

 

Disclaimer: IDFC Asset Management Company Limited (IDFC AMC)/ IDFC AMC Trustee Company Limited (IDFC Trustee) / IDFC Mutual Fund (IDFC MF), does not provide tax advice. The information stated in this document is based on the Fund’s understanding of the tax laws in force. This document has been prepared for informational purposes only, and is neither designed nor intended to be a substitute for professional tax advice. You are requested to consult your own taxation consultant for specific tax implications and advice. IDFC AMC reserves the right to make modifications and alterations to this document as may be required from time to time. Neither IDFC MF / IDFC Trustee / IDFC AMC nor IDFC, its Directors or representatives shall be liable for any damages whether direct or indirect, incidental, punitive, special or consequential including lost revenue or lost profits that may arise from or in connection with the use of the information stated herein.

1. What is Service Tax and who pays this tax?

Service tax is, as the name suggests, a tax on Services. It is a tax levied on the transaction of certain services specified by the Central Government under Chapter V of the Finance Act, 1994.

It is an indirect tax (akin to Excise Duty or Sales Tax) which means that normally, the service provider pays the tax and recovers the amount from the recipient of the taxable service.

Download file to see service tax calculation

2. Who is liable to pay service tax on mutual find commission?

The services provided by Mutual Fund agent/distributor to a Mutual Fund or Asset Management Commission, are being made taxable under forward charge with effect from April 1, 2016. The Small scale exemption i.e. threshold turnover of Rs 10 lakh per year is available to the Mutual Fund agent/distributor, subject to fulfillment of other conditions prescribed,

3. Under what authority service tax is levied?

Vide Entry 97 of Schedule VII of the Constitution of India, the Central Government levies service tax through Chapter V of the Finance Act, 1994. Service is defined under Section 65B(44) of Chapter V of the Finance Act, 1994. Section 66B is the charging section of the said Act.

4. What is the threshold limit for service tax registration?

The registration limit is Rs 9 lakhs. Once the particular threshold is reached, the Mutual Fund agent/distributor is required to undertake registration.

Small service provider can get exemption from payment of service tax up to aggregate value of taxable services up to Rs. 10 lakhs. When turnover of taxable services exceeds Rs. 10 lakhs, service provider is required to charge and pay service tax as explained in the table below:

AV of taxable services provided for previous year
AV of taxable services provided for current year
Service tax applicable
Less than 10 lakhs or 10 lakhs
Less than 10 lakhs or 10 lakhs
Nil
Less than 10 lakhs or 10 lakhs
More than 10 lakhs
Service tax is applicable after Rs. 10 lakh turnover
More than 10 Lakhs
Less than 10 lakhs
No exemption. Service tax is applicable
More than 10 Lakhs
More than 10 Lakhs
No exemption. Service tax is applicable

The Rs 9/10 lakhs limit covers aggregate service turnover of the Mutual Fund agent/distributor from multiple sources of incomes such sale of MF products, sale of insurance products, sale of PMS products etc.

4a. Under which category should distributor need to register?

Distributor should register under the category of �Business Auxillary Services�

5. Payment of Service Tax

Payment of service tax may be made at the specified branches of the designated banks. The details of such Banks and branches may be obtained from the nearest Central Excise Office/Service Tax Office.

6. When is Service Tax required to be paid?

Payments through Bank (Manual payment/Payment by CENVAT credit):

Category
Frequency
Due Dates
In case of Individuals,
Quarterly as mentioned
Proprietary Firms &
below -
Partnership Firms
(i) For Q.E. 30th June
- by 5th July
(ii) For Q.E. 30th Sept.
- by 5th Oct
(iii) For Q.E. 31St Dec.
- by 5th Jan.
(iv) For Q.E. 31st March
- by 31st March
Others (e.g. Companies,
Monthly
by 5th of the subsequent month
Societies, Trusts etc.)
However, in case of March,
the payment should be made
by 31st March.

Electronic Payments through Internet

Category
Frequency
Due Dates
In case of Individuals,
Quarterly as mentioned
Proprietary Firms &
below -
Partnership Firms
(i) For Q.E. 30th June
- by 6th July
(ii) For Q.E. 30th Sept.
- by 6th Oct
(iii) For Q.E. 31St Dec.
- by 6th Jan.
(iv) For Q.E. 31st March
- by 31st March
Others (e.g. Companies,
Monthly
by 6th of the subsequent month
Societies, Trusts etc.)
However, in case of March,
the payment should be made by 31st March.

7. When does service tax becomes payable to the government for taxable services of a particular month?

Distributors are required to deposit service tax with government through electronic payment / banks on or before 5th / 6th of following month / quarter as mentioned above from the date of point of taxation except for the month of March where the due date is March 31st.

Point of taxation is defined in Rule 3 of Point of Taxation Rule 2011 as below:

(a) Where invoice is issued within 30 days from completion of services

(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 services

(i) Date of completion of service or;

(ii) Date of payment received

whichever is earlier

Illustration: Mr. A (Mutual Fund agent) received commission from IDFC AMC of April 2016 in May 2016 and he raises the invoice during the month of May 2016, then he is liable to pay service tax by 5th / 6th of June 2016.

c) The facility of paying service tax on receipt basis [i.e. when consideration for services are received] is available to individuals, partnership firms up to a turnover of Rs 50 lakh in a financial year provided the taxable turnover did not exceed this limit in the previous financial year. For computing the above limits, the turnover of the whole entity is required to be summed up and not any single registration.

8. When payment is made by a client to an assessee after deducting his Income Tax liability under the Tax deduction at source (TDS) provision, whether the Service Tax liability of the assessee is only towards the amount actually received from that client or tax is to be paid on the amount including the Income Tax deducted at source also?

Service Tax is to be paid on the gross value of taxable service which is charged by a Service Tax assessee for providing a taxable service. Income tax deducted at source is includible in the charged amount. Therefore, service Tax is payable on the gross amount including the amount of Income Tax deducted at source also.

9. What is the interest rate applicable on delayed payment of Service Tax?

[Refer to Section 75 of the Finance Act, 1994]

As per the Finance Bill 2016, interest rate for delay in payment of service tax would be as below:

Interest rate
For small tax payers*
Service tax collected but not deposited
24% p.a
21% p.a
Proprietary Firms &
15% p.a
12% p.a

* Small tax payers means a taxpayer �

(a) whose turnover, in any financial year covered by a show cause notice does not exceed Rs 60 lakhs; or

(b) whose turnover in the immediately preceding financial year does not exceed Rs 60 lakhs.

Thus as per Finance Bill 2016, assessee would have to keep the separate books of accounts as mentioned below:

(i) Service tax paid on time without collection

(ii) Service tax paid belatedly without collection

(iii) Service tax collected and paid on time

(iv) Service tax collected and paid belatedly

10. When to file Service Tax returns?

ST-3 Return is required to be filed twice in a financial year � half yearly. Return for half year ending 30th September and 31st March are required to be filed by 25th October and 25th April, respectively.

However, as per Finance Bill 2016, i.e. from FY 2016-17, additional requirement of filing service tax return on annual basis may be introduced. However, provisions in this regard are yet to be notified.

11. Is there any provision to file a revised return?

Yes, under rule 7B of Service Tax Rules, 1994 an assessee may submit a revised return, in Form ST-3, in triplicate, to correct a mistake or omission, within a period of ninety days from the date of submission of the return.

12. Whether issue of Invoice/Bill/Challan is mandatory? When should the same be issued?

Issue of Invoice/Bill/Challan by a Service Tax assessee is mandatory as per Rule 4A of the STR, 1994. The same should be issued within 30 days from the date of completion of taxable service or receipt of payment towards the service, whichever is earlier. However, if the service is provided continuously for successive periods of time and the value of such taxable service is determined or payable periodically, the Invoice/Bill/Challan shall be issued within 30 days of the date when each such event specified in the contract, which requires the service receiver to make any payment to service provider, is completed.

13. Is there any prescribed format for the Invoice/Bill?

There is no prescribed format for issue of Invoice. However, the invoice/bill/challan should contain the following information (Rule 4A of the STR, 1994):

(i) Serial number.

(ii) Name, address and registration no. of the service provider.

(iii) Name and address of the service receiver.

(iv) Description, classification and value of taxable service being provided or to be provided.

(v) The amount of Service Tax payable (Service Tax; Swachh Bharat cess and Krishi Kalyam cess should be shown separately).

14. How does one work out the Service Tax liability and pay the same to the Government?

Value of taxable service (AV) = Rs. 1000

In case the gross amount, including service tax, received is, say, Rs 1000. In such cases the service tax liability may be arrived at by reverse calculation in the following manner.

AV = 1000/115 X 100 = Rs. 869.57 (Rs 870)

Amount of Service Tax + SBC + KKC Payable = Rs 130

 
 
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