Introduction to the Service Tax Partial Reverse Charge Mechanism

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By Himanshu Joshi

Feb. 28 – A new taxation scheme for the services sector that came into effect on July 1, 2012, states that both the service provider and the recipient of the service must now pay the requisite service taxes. Prior to this, the liability to pay such services tax was only born by either the service provider or the service recipient.

For the services where both the provider and the recipient are liable to pay service tax, please see the below chart:

In a case in which reverse charges are applicable, the liability for the service provider and service recipient will follow a different standard. The service provider can utilize their CENVAT credit to take care of the reverse charge liability. The service recipient, however, is unable to do this, and will instead have to pay what they are liable for through cash or bank transfer. This applies even to service recipients that work in small scale industries, where turnover does not exceed the exemption limit of Rs.10 lakh.

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