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How to set off the service tax
February, 10th 2014

If you use the services of vendors and service providers, you may find that the money you pay them includes service tax. When they invoice you for their services, they recover from you the service tax that they have to pay. The tax laws allow a setting off so that credit is available for payments already made to ensure that costs do not rise due to the tax component.

Tax credit: Whenever you prepare invoices in which service tax has been included, you get a service tax credit. This amount is deemed to be the service tax that you have already paid. Setting off: When you file your service tax, you compute the due tax and deduct the total amount you have already paid your vendors as service tax. Then, pay only the balance.

Documentation: To claim a set-off and pay a lower service tax, you should have records of all the invoices. Ensure that those who have billed you are registered and have invoiced you specifically for service tax.

Verification: The proof of payments, which include service tax, should be maintained for audit and reconciliation with invoices. Your invoices to clients represent your service tax dues, while your vendors' invoices represent your service tax credits.

Points to note
* Service tax and education cess are treated as separate items and the setting off applies separately for each of these heads.
* If any part of the service is not subject to service tax, it should be invoiced separately, both by you and your vendors.

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