SERVICE TAX EXEMPTION SCHEME FOR SMALL SERVICE PROVIDERS - UNDERSTANDING THROUGH QUESTIONS - ANSWERS

[Dr. Sanjiv Agarwal]

Threshold for small service providers is available to service providers vide Notification No 6/2005-St dated 1.3.2005 as amended by Notification No 4/2007-ST dated 1.3.2007 and Notification No 8/2008-ST dated 1.3.2008.

An attempt has been made to explain the small service providers exemption scheme with the help of following few Frequently Asked Questions (FAQ's) which will make the threshold exemption facility, as is applicable today, easy to understand.

Q.1 What are the exemption limits during the different periods?

Ans. The following threshold exemptions limits have been in force during different points of time-

Notification No.	Date	Limit (Rs)	W.e.f.
6/2005-ST	1.3.2005	4 lakh	1.4.2005
4/2007-ST	1.3.2007	Rs 8 lakh	1.4.2007
8/2008-ST	1.3.2008	Rs 10 lakh	1.5.2008

Q.2 For the financial year 2009-10, what should be the condition for availing exemption?

Ans. To avail exemption from service tax w.e.f. 01st April 2009, i.e., financial year 2009-10 you should not have total turnover of over Rs. 10 lakh in the financial year 2008-09. If the turnover exceeds Rs. 10 lakh in 2008-9, no exemption from service tax can be availed in 2009-10.

Q.3 What is meant by gross turnover or aggregate turnover of Rs. 10 lakh?

Ans. The turnover should mean the turnover or value of taxable services rendered or provided by the service provider during the year 2008-09. It must comprise of taxable services of aggregate value not exceeding Rs. 10 lakh in the relevant year, i.e., previous year. It should be any amount upto Rs. 10 lakh (including Rs. 10 lakh)

Q.4 In which year first exemption was available?

Ans. The first year of availing exemption was financial year 2005-06, based on value of taxable services rendered (earlier Rs 4 lakh, now Rs 10 lakh ) in the immediately preceding financial year i.e., 2004-05.

Q.5 Whether the present limit of Rs. 10 lakh is in relation to net taxable value?

Ans. Yes, the threshold limit of Rs. 10 lakh shall be reckoned in relation to value of taxable services as provided in section 67 of the Finance Act, 1994. The valuation method shall be the same as is followed for ascertaining the tax liability i.e., gross amount charged by the service provider for the taxable services rendered, subject to exclusions and abatements, if any.

Q.6 If the value of taxable service is upto Rs. 10 lakh, whether service tax should not be charged or the amount charged should be refunded?

Ans. The assessees are first required to ascertain their eligibility for availing the exemption i.e., the threshold limit of Rs. 10 lakh in relation to the financial year 2008-09. If this limit is not crossed, one can avail the exemption scheme. If it already exceeds the limit in 2008-09, then the exemption facility will not be available to the assessee in next year.

Q.7 In case of new assessees or new services, how the limit will be calculated?

Ans. The basic exemption will also be available to new assessees as their previous year's value of taxable services would be nil. Such assessees will have to judge their turnover on the basis of previous year and decide about opting for the exemption by filing a declaration to the Central Excise Department. However, the Notification is silent on this.

Q.8 What will be the status of basic exemption where the value of taxable services in the year of exemption exceeds Rs. 10 lakh?

Ans. Once the exemption is availed, the basic exemption limit of Rs. 10 lakh would continue. The assessee shall have to charge, collect and pay service tax on the amount invoiced after reaching the limit of Rs. 10 lakh. For example, the assessee has decided to opt for exemption scheme and in the month of September 2009, he finds that its turnover has exceeded Rs. 10 lakh. For the bills etc issued upto the stage of reaching Rs. 10 lakh limit for which he has already issued bills and collected proceeds without service tax, the exemption will be allowed. He should charge service tax on all subsequent bills issued against the services rendered and pay service tax accordingly on the bills so issued for the remaining part of the year.

Q.9 Whether the threshold exemption will be available to all service providers?

Ans. No, exemption under the Notification No. 6 dated 01.03.2005 as amended is available to only those assessees whose gross turnover did not exceed Rs. 10 lakh in previous year and only when such assessee opts for availing the exemption by filing a declaration to the Central Excise Department. The option will have to be exercised by the assessee / service provider. However, the scheme is open to all service providers irrespective of category and status of business entity.

Q.10 Whether the option once exercised can be changed?

Ans. No, an option once exercised cannot be changed for that particular financial year. Assessee has an option not to avail exemption under Notification No.6/ 2005 as amended.

Q.11 How should one opt for the scheme?

Ans. The Notification is silent on how the option will be exercised. In absence of any specific procedure, it would be desirable to make a declaration by way of an application on plain paper mentioning the intention to avail for the exemption scheme. It is also advisable not to surrender the registration certificate once the exemption scheme is opted for as at any time during the year, the exemption limit may be crossed which will then call for a fresh registration. It is now mandatory to mention service tax registration number on all invoices etc. A new registration may result in a new number.

Q.12 Where a service provider provides taxable services, whether the limit of Rs. 10 lakh be computed for each such premises separately.

Ans. No, exemption limit of Rs. 10 lakh apply to aggregate value of taxable services provided from all premises taken together.

Q.13 Where a service provider provides different taxable services, whether the exemption limit of Rs. 10 lakh be computed for each taxable service separately?

Ans. No, exemption limit of Rs. 10 lakh shall apply to the aggregate value of all taxable services provided by the service provider.

Q.14 What is the basis of calculating the threshold limit of Rs. 10 lakh - per taxable service, per premises or per service provider?

Ans. The exemption limit of Rs. 10 lakh shall apply to service provider, i.e., Rs. 10 lakh per service provider irrespective of number of taxable services he renders or number of premises from where the service is rendered. Thus, exemption limit of Rs. 10 lakh shall apply to the aggregate value of all categories of taxable services provided by any service provider from one or more premises.

Q.15 What is the basis for ascertaining the exemption limit for availing the exemption scheme?

Ans. Assessees will have to take note of two important conditions for availing and using the exemption scheme meant for small service providers. In Notification No. 06/2005-ST dated 01.03.2005 as amended, clause 2(viii) states that for the purpose of eligibility to avail exemption, the aggregate value of taxable service from one or more premises, should not exceed Rs. 10 lakh in the preceding financial year. In explanation (B) of the Notification, 'aggregate value not exceeding 10 lakh rupees' has been explained to mean the sum total of first consecutive payments received during a financial year towards the gross amount, as prescribed under section 67 of the said Finance Act, charged by the service provider towards taxable services till the aggregate amount of such payments is equal to ten lakh rupees but does not include payments received towards such gross amount which are exempt from whole of service tax leviable thereon.

Thus, in absence of any proper clarification, it appears that while clause 2(viii) provides the condition for eligibility, explanation gives the signal that once the exemption is availed, the continuity of exemption and charge of service tax on the amounts exceeding Rs. 10 lakh shall be based on collection of value of taxable services.

(To be continued)

Discussions to this article

[harshit jain]

is it possible that a person having service tax registation no. and not paying service tax due to turnover below 10 lacs