Can Switching to Piece-Rate Save on Service Tax for Textile Labor? Seeking Advice

Hi,

We are in a manufacturing unit (Textile) and receiving labor services, paying service tax for the same. Someone told us that if we can do the same work on a piece-rate basis, we can save on the service tax. Please help me understand this. I would appreciate your valuable suggestions.

Regards,
Sandeep C.

Is it pure labor or with materials? There is a composite scheme for ST available if the services are with materials.

Dear Mr. Sandeep, Instead of changing the system, you can claim credit of CENVAT against the excise duty payable on your final product. Please check the exact status of the situation with the complete facts of the case.

In case you wish to seek a proper legal/professional opinion on the same, our team of legal and taxation experts shall be pleased to help you. Please feel free to connect.

Thanks,

Kind Regards,
Avika Kapoor
Vice President - Operations
Website: http://www.kapgrow.com

Service Tax Applicability

Service tax is applicable based on the annual bill amount but only on the notified services. A list for service tax applicability has been notified. You can check and download the list or write to me for the list for service tax purposes.

Manpower Supply Through Contractors

Manpower supply, as you explained above, through a contractor, is a normal practice. If the bill amount is going to be more than Rs. ten lakhs a year, your company needs to give a credit at 14%, and the contractor is liable to file return compliance under his Service Tax number about the same.

Regards,
RDS Yadav
Labour Law Adviser

If your company is registered under the Companies Act, reverse charge applies.

Your company has to deposit 75% of the 14% service tax, and the remaining 25% is to be paid by the service provider. The service provider will claim the 25% of the 14% from you and deposit it accordingly.

Service tax is calculated based on the bill amount. Whether you work on a current practice or on a piece rate basis, your bill amount will remain the same. Therefore, the service tax amount will also be the same.