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Reverse Charge Mechanism St
8/26/13

Understanding Reverse Charge Mechanism in Service Tax

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Home > Articles > Service Tax > Understanding Reverse C harge Mechanism in Service Tax

Understanding Reverse Charge Mechanism in Service Tax
Priy anka Sriv astav a on 11 May 2013 Comments

Service tax is an indirect tax levied by service provider on the service recipient. The service provider collects service tax on bills raised on the service recipient and deposits it into the Government account. Hence the liability to pay service tax falls on service provider u/s 68(1). However there is an exception provided to this rule by Sec. 68(2) wherein the Central Government can specify services where the service recipient is also liable to pay service tax to Government wholly or partially. As Tax per Notification No. 30/2012-Service released on 20.06.2012 and later

updated by Notification No. 45/2012- Service Tax released on 07-08-2012, w.e.f. 1st July, 2012, modifications have been made on certain taxable services with respect to their rate of tax liability arising on the person providing the service and the person receiving the service. In other words, in respect of certain taxable services, the current service tax rate of 12.36% will be distributed between the service provider and the service receiver, and both shall be liable for their portion of service tax calculated. They both will pay their respective percentage of service tax to the Government and file ST3 returns. This is called Reverse Charge Mechanism. The Reverse Charge Mechanism is complete where for some services, only the service recipient is taxable and it is Partial where both service provider and the service receiver are taxable. Previously, during preparation of invoice or bill, the service provider would charge service
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