Point of Taxation Rules notified in the Union Budget and seeking to levy service tax on ‘accrual' basis could result in cash flow problems for the services sector, according to experts.
But shift of payment of tax from cash to accrual will help capture transactions properly and enable payment of tax at the appropriate time, said Mr R. Venkatesan and Mr Sherry Oommen, tax specialists with the Kochi office of KPMG.
GENERAL RULE
Demystifying the term, they said Point of Taxation Rules 2011 will 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 : (i) date on which the service is provided or is to be provided (ii) date of invoice and (iii) date of payment.
The intention of these rules is to simplify the matters on levy and collection of service tax and align with the excise and VAT system of paying tax on accrual basis, they said.
On the whole, the Budget intends to keep a balancing act of driving growth agenda and keeping fiscal deficit and inflation under control.
TRANSITIONING THEME
The increase in basic exemption limit from Rs 1.6 lakh to Rs 1.8 lakh would be a welcome relief to the ‘aam aadmi,' providing tax savings of Rs 2,000 per person.
Reduction of surcharge from 7.5 per cent to 5 per cent for companies is a step towards transitioning to the new Direct Taxes Code effective April 1, 2012.
Relief of withholding taxes on interest payments to 5 per cent on infrastructure debt funds by foreign investors will facilitate funding in this important sector, the experts said.
Comments
Comments have to be in English, and in full sentences. They cannot be abusive or personal. Please abide by our community guidelines for posting your comments.
We have migrated to a new commenting platform. If you are already a registered user of TheHindu Businessline and logged in, you may continue to engage with our articles. If you do not have an account please register and login to post comments. Users can access their older comments by logging into their accounts on Vuukle.