Thursday, October 13, 2011

conversion from cash basis to accraual basis

Conversion from Cash Basis to accrual basis and Point of Taxation

The Finance bill proposes to revamp the entire service tax regime by conversion from cash basis to accrual. To effect the same, it is proposed by Notification No 3/2011 to amend Rule 6 of Service Tax Rules 1994 and substitute the words  “payments are received, towards the value of taxable services ”, with the words  “service is deemed to be provided as per the rules framed in this regard ”. Rules as mentioned, that how the calculation will be made will be released shortly.

Point of Taxation Rules, 2011 have been framed vide notification 18/2011-ST and made effective from 01.04.2011. These rules determine the point in time when the services shall be deemed to be provided. The general rule will be that the time of provision of service will be the earliest of the following dates:

  1. Date on which service is provided or to be provided
  2. Date of invoice
  3. Date of payment

Consequential changes have also been made in the Service Tax Rules, 1994 to alter the payment of service tax from receipt of payment to provision of service and also to permit adjustment of tax when service is not finally provided.