Overview of Service Tax

Service tax is a central government tax that customers are charged on the services provided to them. Service providers are responsible for issuing invoices and
charging service taxes to their customers. The service provider is required to deposit the tax amount to the tax authority after collecting the tax amount from the
customer. The service tax payment must be submitted with the TR-6 Challan form to the designated branches. An additional surcharge called an education cess
is also included in the service tax amount that is charged to the customer.
The service tax credit can be claimed when the registered customer pays the taxes and taxable services to the service provider. The service tax for a particular
period is payable on the value of the taxable service received only for that period and not on the gross amount charged. The service provider must issue a
revised bill to the customer for the services received. For individual proprietor or partnership firm, the service tax must be paid on a quarterly basis. The
payment should be made by the 25th day of the month following the quarter. For other entities such as companies, the service tax should be paid on a monthly
basis before the 25th day of the following month. If the payment of service tax is delayed, the customer must also pay the penalty fees in addition to the tax
amount.
The service provider must follow these legal provisions for the service tax:

Register only the centralized billing location if services are provided by more than one location.
Obtain registration from the appropriate tax authority for each location or office if there is no centralized billing location.
Submit a single application for registration to the tax authority that includes all the taxable services if more than one service is provided by the same
location.

The service tax returns must be filed in the Form ST-3 or ST-3A on a semi-annual basis to the tax authorities. The returns must be filed within 25 days of the
semi-annual closing period with TR-6 Challan. The service provider must file a nil return if no service is provided during six months.

3.2 Overview of Point of Taxation Rules for India

On March 31st, 2011, the Indian Government announced rules to introduce amendments to the new legal requirement of Point of Taxation for Services. These
rules are applicable from April 1st, 2011 for services provided or received in India. These rules define principles of service taxation during various situations.
The phrase 'point of taxation' means the point in time when a service deems to have been provided, thereby creating a need for imposing the tax even if it is
prior to receipt of consideration for services. The relevant rule defines the point of taxation as the earliest of:

Actual provision of a service.

Creation of an invoice.
Receipt of consideration.

This rule shifts the service tax from cash to an accrual base. This rule also states that if you receive advance before providing services, you must pay the tax at
the time of such receipt.
The Point of Taxation is deemed on conditions in this regard:

3.2.1 Export of Services

When you receive services from abroad, the point of taxation will be the date on which you receive an invoice or make a payment, whichever is earlier.

3.2.2 When Service Tax Rate Changes

Now that the levy and collection of service tax is based upon the provision of the service, creation of the invoice, or the receipt of consideration and because
these three events could transpire at different points of time, there could be a change in the applicable rate of service tax between these events. To address this
situation, Rule 4 defines these principles:

When you provide a taxable service before the change in tax rate, the taxable event is determined as follows:
o When the invoice is issued and the payment is received after the change in rate, the point of taxation will be the date of payment or issuing of
invoice, whichever is earlier.
o When the invoice is issued prior to change in tax rate, but the payment is received after the change, the point of taxation will be the date of
issuance of invoice.
o When the payment is received before the change in tax rate, but the invoice is issued after the change, the point of taxation will be the date of
payment.
When you provide a taxable service after the change in tax rate, the taxable event is determined as follows:
o When the payment is received after the change in tax rate, but the invoice is issued before the change, the point of taxation will be the date of
payment.
o When the invoice is issued and the payment is received before the change in tax rate, the point of taxation will be the date of issuance of invoice
or the date of receipt of payment, whichever is earlier.
o When the invoice is raised after the change of rate, but the payment is received before the change in tax rate, the point of taxation shall be date of
issuance of invoice.

3.2.3 Newer Services

The amendments to rules also describe changes to the point of taxation in case of introduction of new services, which means that the services that are newly
considered to be taxable. Based on Rule 5, you do not need to pay service tax on any new taxable service if the invoice is issued and payment is received
against such an invoice before the introduction of such service in the taxable category. This means that if two of the events have occurred before the
introduction of the new service as taxable, then you need to ignore the date of provision of service. In addition to this, if you receive the payment against such
new service before its introduction and subsequently issue an invoice within 14 days, you do not need to pay service tax.

3.2.4 Continuous Supply of Services

'Continuous supply of service' is defined to mean any service which is provided or is to be provided under a contract for a period exceeding three months or any
service notified by the Central Government to be such a service.

The taxable event in such cases depends on the contract between the parties because the taxable event is the date of payment for the service, as provided in the
contract. However, if the payment is received or an invoice is issued prior to the above date, the point of taxation is the date of payment or date of invoice,
whichever is earlier.

3.2.5 Associated Enterprises and Person Required to Pay Tax as Recipients

The transactions between associated enterprises are already based on accrual principle and therefore have not been changed much. However, payments related
to use of copyrights, trade marks, royalties are now taxable at the time of each such payment, whether or not the service was provided only once at a single
point of time.

3.3 Process Flow for Service Tax

This process flow shows the steps that a service provider performs to process, generate, calculate, and remit service tax in the O2C cycle:
Figure 3-1 Service tax process flow for O2C cycle

Description of "Figure 3-1 Service tax process flow for O2C cycle"
This process flow shows the steps that the manufacturer performs in the P2P cycle:
Figure 3-2 Service tax process flow for P2P cycle

Description of "Figure 3-2 Service tax process flow for P2P cycle"

Overview of Excise Tax

An excise tax is a tax levied by the central government on goods manufactured in India. A buyer collects the excise tax or excise duty from the purchaser at the
time of sale of a product. The excise duty is levied on all products specified in the Central Excise Tariff Act, 1985 (CETA).
The excise tax can be based on the value of goods or a fixed rate tax. Based on the notifications issued by the Central Government of India, some products are
fully exempted from excise duty.
You can define one or more excise units for each company. Each company has one excise unit for each state and each excise unit is mapped to multiple
business units. The transactions for excise tax occur at the business unit or excise unit level.
The system creates the transactions related to excise tax during the Procure-to-Pay (P2P) and Order-to-Cash (O2C) cycles. The P2P cycle comprises the period
from the creation of a purchase order to when the payment is made to the supplier. When traders purchase goods on which excise tax is applicable, they must
perform the tasks defined in the P2P cycle.
The O2C cycle comprises the period from the creation of a sales order to when the payment is received from the customer. When traders sell goods on which
excise tax is applicable, they must perform the tasks defined in the O2C cycle.
The excise tax authorities have defined these requirements for different types of traders who work with the excise component of trade:

Manufacturers must pay excise duty when purchasing raw materials. This is a part of the P2P cycle. However, they must also pay excise duty when
selling finished goods. This is a part of the O2C cycle. Manufacturers maintain all statutory records according to the excise rules defined by the excise
authorities.
Dealers are not required to pay excise duty because they perform only a goods transfer.
Manufacturers who are exporters are not required to pay excise duty according to the excise rules. However, they must submit ARE 1 bonds or ARE 3
certificates, which are equivalent to the excise amount or excise quantity, to the excise authorities for a given period.

The manufacturers who send consignment of goods outside the company for work do not have to pay excise duty if they receive the consignment within 180
days. They must submit the consignment note to the tax authorities to declare the receipt of goods within the required time period.
Each excise unit has to maintain legal records to submit to the tax authorities. These include:

RG1 register. Excise units maintain this register. This register includes receipts, issues, and stock of furnished goods.

RG23D register. Dealers maintain this register to record the stock transfer at purchase price.
Personal ledger account (PLA). Excise units maintain this register by depositing the cash amount for the duty payment in the bank with the TR-6
challan.
RG23A-II. Manufacturers maintain this account for the purchase of raw materials. This account is also referred to as AII.
RG23C-II. Manufacturers maintain this account for the purchase of capital goods. This account is also referred to as CII.

8.2 Process Flow for Excise Tax

This process flow shows the tasks that a supplier performs to work with the excise tax component of sales:
Figure 8-1 Excise process flow for the O2C cycle

Description of "Figure 8-1 Excise process flow for the O2C cycle"
This process flow shows the tasks that a manufacturer performs to work with the excise tax component of purchase:
Figure 8-2 Excise process flow for the P2P cycle

Description of "Figure 8-2 Excise process flow for the P2P cycle"

Overview of VAT
Value-added tax (VAT) is a state tax that is charged on the value added to goods or items at different stages of production and distribution. Value added is the
difference between the sale price and the purchase price. The state assigns each item a particular VAT percentage. Some items are exempted from VAT.
You can offset the VAT that you pay by the VAT that you collect. For example, the tax paid by the VAT registered dealers for purchases can be offset by the
tax collected by them for sales. The process of offsetting the tax varies for different types of transactions. For example, the process of offsetting VAT is
different for the purchase of capital goods, treatment of opening stock, and for purchases from unregistered dealers.
Each VAT registered dealer has a unique tax identification number (TIN) that must appear on the tax invoice. The VAT registered dealer is required to issue the
tax invoice to the purchaser with the details required by the government.
The other statutory VAT documents are purchase register, sales register, VAT registration certificate, and proof of tax payment.

15.2 Process Flow for VAT

This process flow shows how to process VAT for sales orders and purchase orders:

Figure 15-1 VAT process flow

Description of "Figure 15-1 VAT process flow"

Overview of Purchase Tax

Purchase tax is the tax levied by the state government on the purchase of goods. The buyer pays the tax for the goods that are procured from the dealer. The
dealer remits the collected tax to the tax authorities.
The purchase tax is applied to a wide range of goods. A voucher is created and includes the details about the goods sold, as well as the price and tax. The
vouchers are posted for the tax calculation.
To claim a purchase tax exemption, vouchers are attached with concession forms. The forms show the voucher details for claiming the tax exemption. The
landed cost component enables the calculation of the purchase tax for the voucher. The purchase tax is updated when the appropriate landed cost rule is
associated with the voucher.

21.2 Process Flow for Purchase Tax

This process flow shows the steps in the purchase tax process:
Figure 21-1 Purchase tax process flow

Overview of TCS
Tax collected at source (TCS) is a federal tax that customers are charged on goods. Suppliers that sell the goods are responsible for charging TCS to their
customers and collecting the amount, as well as remitting the TCS amount to tax authorities. TCS is applicable either at the time of debiting the customer or
receiving the money from the customer during sale of notified goods, whichever is earlier. Suppliers are required to remit the TCS amount to the tax authority
and issue the certificate Form 27D to the customer within ten days of receiving the payment.

23.2 Process Flow for TCS

This process flow shows the steps that a supplier performs to charge, collect, and remit TCS:
Figure 23-1 TCS process flow

The process flow for collecting and remitting TCS is different for prepayments. When a customer makes a prepayment without the sales order and invoice, you adjust it
with the next invoice for that customer and submit the TCS on that amount to the government.

Overview of TDS
Tax deducted at source (TDS) is a tax that is deducted from income that a company in India pays to a recipient or supplier if the income amount exceeds a
specific statutory limit in a financial year.
The types of income that are subject to TDS include:

Salary.
Interest and dividends.
Winnings from the lottery.
Insurance commission.
Rent.
Fees from professional and technical services.
Payments to contractors and subcontractors.

The withholding amounts for TDS can be deducted from an invoice submitted by a supplier or from the payment that is issued to the recipient or supplier.
Examples of recipients and suppliers include contractors, providers of professional services, employees, and real estate landlords. Companies submit a TDS
certificate to each supplier on a monthly or yearly basis. The certificate includes the payments, as well as information about the company and supplier.
Companies must also submit an annual return to the government for each recipient or supplier for the financial year. TDS certificate can be either Form 16
(R75I10A) or Form 26Q-P2P-IND (R75I122EQ). Form 16 is the TDS certificate which an individual submits and Form 26Q is the TDS certificate which a
company submits to the tax authorities.
TDS must also be deducted from payments issued to third parties by both corporate and noncorporate entities. The entity must deposit the amount owed for
withholding at any of the designated branches of banks that are authorized to collect taxes on behalf of the government of India. The entity must also submit the
TDS returns, which contain details about the payments and the challan for the tax deposited to the Income Tax Department (ITD).
For electronic TDS, companies must generate the Form 26Q for each financial quarter. This is a statutory requirement for the ITD.

25.2 Overview of WCT

Works contract tax (WCT) is a tax imposed on a contract for work such as assembling, construction, building, altering, manufacturing, processing, fabricating,
installation, improvement, repair, or commissioning of any movable or immovable property.
WCT is based on the contracts for labor, work, or service and not for the sale of goods, although goods are used to fulfill the contract. For example, when a
contractor constructs a building, the buyer pays for the cost of the building which includes the building material, labor, and other services. No contract exists for
the supply of the building material. The WCT tax applies only to the building and not for the materials used for construction. WCT certificate is the Certificate
of Tax (R75I119) which you submit to the dealer or contractor.
Note:
A transaction is considered a works contract only if the finished product is supplied to a customer and is not sold in the market to any other person.

25.3 Process Flow for TDS and WCT

This process flow shows the steps to charge and remit TDS and WCT:
Figure 25-1 Process Flow for TDS and WCT