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Service Tax Change hurts Small, Growing Businesses

October 12th, 2011 · 3 Comments

In April, the rule regarding payment of service tax was changed. Earlier, payment had to be made when the money was collected. Now, payment of the tax has to be done on billing. In India, it typically takes 3-4 months for most payments to come in, and there is always some issue with some bills – write-offs, changes, etc. Taken together, this hurts cashflows for companies, and especially smaller, growing businesses, because money now needs to be paid to the government upfront rather than when the real cash comes in.

I am not a finance or taxation expert, but as a business owner, I can definitely saw this is not a good step for business. Over the past few years, paperwork has increased manifold with all the government rules and regulations, and now the cashflow is being hit. I am surprised that this issue has not been raised more vigorously by business owners and industry associations.

I hope someone sees the light. India’s growth needs to come from entrepreneurs, and rules like this make it much harder for entrepreneurs to succeed.

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3 responses so far ↓

  • 1 Satyam Bachani // Oct 12, 2011 at 4:03 pm

    The only solution I could come up for this was raising per-forma-invoice’s for new clients with big billing amounts.

    Its a stupid rule, also another crazy thing I came across was the liability to me of VAT collected from my company towards bills raised not being paid by my vendor to the government!!

  • 2 Gaurang Desai // Oct 12, 2011 at 7:42 pm

    Whatever small write-offs, discounts, rate diff, deductions etc can be adjusted in the next quarter – they have made it at par with Excise, Sales Tax etc all are on billing – cash flow hurts but that’s initial only till the first cycle is completed then it is self rotating 🙂

  • 3 Adarsh // Jan 12, 2012 at 2:36 pm

    Sir,
    We have started a Interior Decoration Business last month & the billing, as we have to collect the service tax, My question is – Do we have any excemption like up to a level of collecting of Service tax then we have to pay ST, I herd it from a friend who is doing CA , as he told we have to collect 10L or above & then we have to Pay , the amount after all these billing

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