Service tax in India for Translators

We are sending this message to all Indian translation community members from Trans Infopreneur Inc., Bangalore. This is to inform that service tax (12.24%) is applicable for domestic translation and allied services w.e.f. 01.05.2006 under the head 'Business Support Services'. Tax is not applicable for overseas business (if payment is received by your bank in foreign currency). Work done for few organisations like UN etc. is also exempted. List available on service tax website. We had already informed about this to all interested translation companies who had contacted us in past few months. This message is addressed to all those who may not be aware of this issue. Pl. do forward this to other interested members/associations. >01. Background: We had consulted several leading service tax consultants regarding service tax applicability to our industry. It took nearly three months for this issue to be resolved. Translation services is not mentioned specifically under any head of service tax and hence the confusion. The consensus is that it falls under business support services. Later we seeked Service Tax Department opinion and they also issued a formal notice that tax is indeed applicable (well obviously we cannot expect an opinion to the contrary) under Business Support Services. This notice must have been circulated by the Bangalore Commissioner to all other cities. The department may bring out a circular on the ST website (http://www.servicet ax.gov.in/). So even if we get opinion to the contrary from any consultant, it would be of no use as department has already taken the stand that tax is applicable. > >02. Who is liable to pay: All individuals/ companies whose total receipts from domestic translation- related activities from May 2006 to March 2007 is/would be Rs 4 lacs. Actually you are supposed to register once the receipts crosses Rs 3.5 lacs. Please note that tax is payable on your actual receipts (payments received from clients) and not on your total turnover for the period (as used for calculating sales tax/VAT etc.). This is not applicable for your turnover from overseas sales. > >03. Is tax to be paid even if you have not billed the client for it: YES. This is the major problem. Even we had to bear losses running into several lacs as clients refused to pay tax for bills which we had raised in May/June without service tax. So in case you have not paid dues for all bills raised since May 2005 onwards, pl. do so. If desired, you can deduct Rs 4 of taxable receipts from May onwards and pay tax on the balance. For example, if your receipt from 01.05.2006 to 25.07.2006 is Rs 4 lacs, you have to pay taxes for receipts from 26.07.2006 onwards. But if you had charged your clients tax from May 2006 onwards itself, then you obviously have to pay from May onwards. Other than this waiver, there is no other concession. Please do not be under the impression that one can wish away this issue. If you are a freelance translator, then you could always raise invoices in different family members names but this may not be feasible for an established agency/company. Onc e the depart > >04. Service tax on input (note for agencies): If you use the services of overseas translators, you have to pay service tax on the total amount paid to them (under reverse charge concept) even if the total payment made to them is under Rs 4 lacs. This is not applicable for Indian translators as they do not fall under tax net unless their receipts is above Rs 4 lacs. But there is a provision in tax rules that this tax can be credited against the tax paid on your output (tax charged by you to your clients). You could also claim credit for other service tax paid by you (for telephone bills, professional fees of accountants, broadband connection, other service providers and such like) as the rule states that credit can be claimed for tax paid to other providers provided the service used is for the betterment of the business. Input tax has to be paid earlier than the output tax (this will be explained in the example given below). Do not take credit for the tax paid to other ser vice provide > >05. Payment date: For private and public limited companies, by 5th of the next month. For example, tax for January has to be paid by February 5th. For all other assesses (individuals, proprietership, HUF, partnership) , tax has to be paid by 5th of the start of the next quarter i.e; by July 5th, October 5th, January 5th, April 5th. Half-yearly return has to be filed. You also receive intimation about the date of audit. You have to produce all your records at that time. > >06. How to register: Registration is free. Certificate and the certificate number is received within 7-10 days of filing. Help desk at the department can help you fill the form. The tax number comprises of your PAN no. and a prefix. This number should be printed on your bills to your clients. You should maintain some sort of bill numbering system. > >07. Is tax payable for bills raised to clients prior to May 2006 for which payment is received after first May 2006: NO > >08. Is input tax payable for overseas translators invoice which is dated April 2006 and payment made in May/June 2006: This is a fuzzy issue. As there is a possibility that the audit team of the department may raise a query about this, it is better to pay this. Anyway you will be claiming credit for this against your output tax. > >09. Is tax paid on the TDS amount which is deducted from domestic translators bills. TDS at 5 % (+ surcharge, under professional fees head) is deductable for translation services if the annual payment to a particular entity is more than Rs 20,000 in a fiscal year. Service tax is computed on total bill amount. For example, if you receive a bill from a translator for Rs. 30,000 + ST (3672) = Rs. 33,672, you will pay the translator Rs 33,672 less TDS amount. TDS amount will have to be paid by you within 7th of next month. > >10. Is tax payable on advance: YES if the advance is not adjusted with a subsequent bill to the client within 15 days of receipt of advance. Either way the tax on the advance amount has to be paid (either at time of receipt of advance or at time of receiving the balance payment). > >07. An illustrative example: > >For a particular month, fol. is your receipts/sales: > >(a) Domestic sales: Rs 3,00,000 (sales is immaterial for purpose of service tax) > >(b) Payments received from Indian clients (for bills after first May 2006) : Rs 2,00,000 > >(c) Payment made to overseas translators (before bank charges) : Rs. 50,000 > >(d) Service tax paid for phone bills, other providers: Rs. 500 > >(e) Service tax paid to other translators and agencies: Rs. 1000 > >INPUT TAX: for (c)- Rs 50,000 * 12.24 = Rs. 6120 > >OUTPUT TAX: for (b)- Rs 2,00,000 * 12.24 = Rs. 24,480 > >Deductions for output tax: (d) + (e) + input tax = Rs. 500 + Rs. 1,000 + Rs 6120 = Rs 7620. >Hence output tax payable is: Rs. 24,480 - Rs 7620 = Rs. 16,860. >So you have to issue two cheques to the department for this month. This follows the principle that input tax is to be paid first before claiming deductions for output tax. As you would have already paid service tax for (d) and (e) at time of making payment to them, input tax deduction can be claimed on that basis. As you are also issuing cheque for (c), input tax credit can be availed for that. Technically you are issuing the cheques simultaneously but there is no problem for availing credit for input. > >08. Credit for other taxes: Credit cannot be taken for taxes paid to state governments (VAT, octroi, local taxes, etc.). Service tax is a central government levy. Credit can be taken for certain portion of customs duty paid (this is rather complicated, please consult your CA for that). > >09. Need further information: You could visit the Help Desk of the department. They are adept in filling forms and helping with procedural queries. >Or consult your CA. We are not the right entity to answer queries on this issue. We just wished to present the facts as known to us. > >10. Final advice from our company: The department has a special cell for catching evaders (taking the plea that the tax is not specifically listed in the list of service tax will not help nor the plea that as I have not collected from our client and hence I cannot pay from my pocket). This cell is adept in net surfing. It is very easy for them to get addresses of all agencies who have a website. Freelancers do not have to worry per se but agencies with receipts more than Rs 4 lacs definitely should pay the taxes immediately else there is imminent risk that your comapny may face immense financial burden after couple of years if the department sends a notice with penalty. At times, having a website may be a curse ! Source: Ashok Bagri Managing Partner Trans Infopreneur Inc. Managing Partner 'KSL Kantoor' ite no. 01, 445/1, Outpost Police Station Road (Off Kodagehalli Main Road), Sahakaranagar, Bangalore - 560092, INDIA