4 per cent Service Tax on Works Contract based on payment received

The Government has revised the rate of service tax from 2 per cent to 4 per cent under composition scheme on Works Contract vide Service Tax Notification No.7/2008 dated 1st March 2008.

Doubts were raised whether the changes of the rates on the work contract services revised in the Budget 2008, from 2% to 4% would be effective from 1st March, 2008 in cases of ongoing contract i.e. where these services were agreed to be provided prior to 01.03.08 but the actual provision of the services took place after 01.03.08.

It has been clarified by CBEC that the service tax becomes chargeable on receipt of the payment and on the amount for receipt. Therefore, the rate of 4 per cent is applicable for the work contract where the payment of service is receipt on or after 01.03.08