Service Tax applicability on reimbursement of expenses, Service Tax

[BHAGWAN DAS GUPTA]

THE CHARTERED ACCOUNTANATS IN GENERAL HAVE NOT CHARGED SERVICE TAX IN THE BILL FOR RE-IMBURSEMENT OF EXPENSES SUBMITTED TO THE BANKS FOR STATUTORY AUDITS OF THE BANKS/ BRANCHES DONE FOR THE YEAR 2005-06. WHETHER THEY HAVE TO DEPOSIT THE SERVICE TAX IRRESPECTIVE OF THE FACT THAT HAVE CHARGED OR NOT? WHETHER THEY SHOULD ISSUE THE SEPARATE BILL/DEBIT NOTE TO THE BANKS AND ON THE RECEIPT OF THE SAME THEY SHOULD DEPOSIT?

Posts / Replies

[Surender Gupta]

In accordance with the provisions of the Service Tax and Rule made thereunder with respect to determination of valuation, re-imbursement of expenses incurred for staturoty audits of the bank will be part of the taxable services of a Chartered Accountant. Therefore, irrespective of the fact that banks have reimbursed the amount of service tax on such expeses, they have to pay service tax on the gross amount received from banks towards their services. However, they may calucalate the service tax by applying the reverse calculation method assuming that service tax is involved therein. Issuing of a separte bill on bank is depends upon mutual agreement and negotiations. Furhter, if a Chartered Accountant receives further money towards serivce tax on separate bill, and paid the service tax on the gross amount by applying the reverse method, he has to pay service tax again on the amount realized from the bank subsequently by applying the same method.

[Madhukar N Hiregange]

The new valuation rules have come into effect from 19.4.2006. If audit was completed prior to that there would be no need to pay the ST. However if provided after that date then even if the same is not charged to the bank you would have aliability. However you could calculate the ST payable by dividing by 112.24 and mulitply the resultant figure by 12.24. If you plan to collect from the bank then you would pay 12.24 on the gross amount of reimbursments.