Basics of Service Tax

Basics of Service Tax | Rates, Collections and Exemptions

Basics of Service Tax: Service Tax is the tax levied on services provided to the general public. Under the Finance Act 1994, the services which are specified by the Central Government are included for the imposition of Service Tax.

In 2012, the Union Budget drastically changed and increased the Service tax and excise duty to 12% which was 10% earlier. With the help of this article, we will learn about the basics of the Service Tax, exemption, payment, and Service Tax collection. Here’s an image showing the table of service Tax rates from 1st June 2016.

What is Service Tax?

Service Tax is the tax levied on services provided to the general public. Under the Finance Act 1994, the services which are specified by the Central Government are included for the imposition of Service Tax. There are two parties involved in this and an individual cannot provide service to himself/herself. Value Added Tax(VAT) and Service Tax are completely discordant.

Service Tax is an indirect tax which is a tax in which a supplier can pass on the burden to bear tax to the potential buyer. Let us consider and understand this with the help of an example: The value of a taxable service is Rs.200. Service tax @12% will be Rs.24 and Education Cess @2% of the Service Tax will be Rs.0.48. Now, the Secondary & Higher Education Cess @1% of the service tax comes to Rs. 0.24. So Now the total tax would be = 24 + 0.48 + 0.24 = Rs.24.72 and the person would be required to pay Rs.224.72

 

Service Tax Rates

The imposition of Service Tax was initially levied on three services which came into effect from 1st July 1994. On 1st May 2011, it was recorded that over 119 items were taxable. Later, on 1st April 2012, over 17 services were exempted like education, public transport, agricultural services, etc.

  • In 2015, the budget presentation revealed the increase in Service tax rate to 14% which was 12.36% previously. On 1st June 2015, the Finance Ministry levied a new Service tax rate at 14%.
  • Swachh Bharat Cess was introduced on 15th November 2015 at a rate of 0.5%. Hence, 14.5% is the effective Service tax rate which came into effect from 15th November 2015.
  • Krishi Kalyan Cess was introduced on 1st June 2016 at a rate of 0.5% on all taxable services. Hence, 15% is the new effective tax rate now. The government is probably looking to increase the Service Tax to 17-18% and level it up with the Goods and Service Tax (GST).
Period Service Tax Rate Education CESS Rate  Secondary And Higher Education CESS (SHEC) Effective Levy
1st July 1994 to 13th May 2003 5% NIL NIL 5%
14th May 2003 to 9th September 2004 8% NIL NIL 8%
10th September 2004 to 10th April 2006 10% 2% NIL 10.20%
18th April 2006 to 10th May 2007 12% 2% NIL 12.24%
11th May 2007 to 23rd February 2009 12% 2% 1% 12.36%
24th February 2009 to 31st March 2012 10% 2% 1% 10.30%
1st April 2012 onwards 12% 2% 1% 12.36%

Who is Liable To Pay Service Tax?

The service provider is the one who pays the Service tax to the government on the sale of his/her services. Under Section 68(1) of the 1994 Act, the service provider charges service tax on the receipt of the sale of his/her services and then provides the taxable service to the government. Under the reverse charge, method tax is payable by the service receiver, under Section 68(2) of the 1994 Act. Here’s the table showing taxable services;

Advertising Agency Service Advertisement- sale of space or time services Air Travel Agent’s Services Auction Service
Architect’s Services Asset Management Services By Individuals ATM operation, maintenance or management services Auction Service
Authorised Service Stations for motor vehicles servicing or repairs Banking and other financial services Beauty treatment Services Brand Promotion Services
Broadcasting Services Business Auxiliary Service Business Exhibition Service Business Support Service
Cable Operator’s services Cargo handling Services Chartered Accountant’s (practising) services Cleaning Services
Clearing and forwarding agent’s services Clearing & processing house services Club’s or Association’s  membership services Commercial training or coaching services
Commercial use or exploitation of any event service Commodity exchange service Company secretary’s  (practising) services Construction of residential complex service
Construction or renovation of commercial /  industrial buildings / pipelines / conduits services Construction Services – Preferential Location and Development Consulting engineer’s service Convention services
Copyright Services Cosmetic or Plastic Surgery Service Cost accountant’s  (practising) services Courier Services
Credit card, debit card, charge card, or other payment cards related services Credit rating agency’s services Custom house agent’s services Design services
Development & supply of content for telecommunication, advertising and online information services Dredging services Dry cleaning services Electricity Exchange services
Erection, commissioning or installation service Event Management Service Fashion Designer Service Foreign Exchange broking services
Forward Contract Service Franchise Services Health club and fitness centre services Health Services
Information Technology software services Insurance auxiliary services concerning general insurance business Insurance auxiliary services concerning  Life Insurance business Insurance business services (General Insurance)
Insurance business services (Life Insurance) Intellectual property services Interior decorator’s services Internet  café’s services
Internet telecommunication services Investment management service under ULIP Legal consultancy services Lottery and other Games of Chance Services
Mailing list compilation and mailing services Management or business consultant’s services Management, maintenance, or repair services for  goods, equipment or properties Mandap keeper’s services
Manpower recruitment or supply agency’s services Market research agency’s services Medical records maintenance service Mining service
On-line information and database access and/or retrieval services Opinion poll service Outdoor caterer Packaging services
Pandal or shamiana services Photography services Port services by major ports Port services by other ports (minor ports)
Programme (T. V. or Radio) services Public Relation Service Rail travel agent’s services Real estate agent’s services
Recovery agent’s services Registrar to an issue services Rent-a-cab services Renting of immovable property services
Scientific or Technical Consultancy Services Security  agency’s  services Share transfer agent service Ship management services
Site formation and clearance, excavation and earthmoving and demolition services Sound recording services Sponsorship service Steamer agent’s services
Stock broking services Stock exchange service Storage and warehousing services Supply of tangible goods services
Survey and exploration of mineral services Survey and map making services Technical inspection and certification services Technical testing and analysis services
Telecommunication services Tour operator’s services Transport of coastal goods and transport of goods through national water way/inland water service Transport of goods by air services
Transport of goods by road Transport of goods by rail service Transport of goods through pipeline / conduit services Travel agent’s (other than air or rail) services
Travel by air services Travel by cruise ship service Travel by cruise ship service Video tape production services
Works contract Services Hotel, Inn, Club and Guest House Service Restaurant service

Exemptions

Small-Scale service providers are exempted from paying Service Tax for their taxable services. The current limit is Rs.10 lakhs which was no exemption limit before 1st April 2005. Here’s a table below showing the exemption limit;

Period Exemption Limit
Before 01/04/2005 No limit
01/04/2005 – 31/03/2007 Rs.4 lakhs
01/04/2007 – 31/03/2008 Rs.6 lakhs
01/04/2008 onwards Rs.10 lakhs

Registration

A service recipient has to obtain a registration first to pay the service tax. The service recipient has to fill the Form ST-1 with a precise application to the concerned Superintendent of Central Excise. Under Section 66 of the Finance Act, 1994, this has to be done within 30 days from the date of service tax levied. The form requires a photocopy of the PAN card, address proof, and a copy of the partnership deed if there is any.

Invoice

An Invoice is required to be submitted by the person providing taxable service with his/her signature on it. This has to be done within 14 days of service completion or payment receipt towards the value of the service. The following information should be there in a properly serial-numbered invoice;

  1. Name, Registration number, and Address of the concerned person.
  2. Name and Address of service recipient.
  3. Value of taxable service provided, Classification and Description, and
  4. Service Tax Payable Theorem.

Dates for Payment of Service Tax

The Service tax is to be paid quarterly if an individual or proprietary concerns and partnership firms are involved. The due date for Service tax payment is the 5th of the month following the respective quarter. In the case of the e-payment method, it has to be done by the 6th of the month following the respective quarter. April to June, July to September, October to December, and January to March are the quarters set for this purpose but for the last quarter’s payment, 31st March is the appointed date.

E-Payment

The e-payment facility was introduced and came into effect on 11th May 2005. It was on 1st April 2010, that the e-payment mode was made mandatory for Service Tax payment. This has been done to record whoever paid Rs.10 lakhs and above during the financial year.

Service Tax Collection

In 1994, the Service Tax collections showed a steady rise since its establishment. It was recorded that the tax collection had a drastic increase from Rs.410 crores in 1994-95 to Rs.71174.58 in 2010-11. There was a substantial increase of Rs.1774.58 crores which come to 2.56% as the target set for the period 2010-11 was Rs.69400 crores. In 1994-95, the number of service accesses increased to 3943. Here’s a table showing the statistics about the revenue and assessees in 1994-95;

FINANCIAL YEAR REVENUE (In Crores) % GROWTH OVER PREVIOUS YEAR NO. OF SERVICES  NO. OF ASSESSEES % GROWTH OVER PREVIOUS YEAR
1994-95 410 Base Year 3 3943 Base Year
1995-96 846 106 6 4866 23.41
1996-97 1022 21 6 13982 187.34
1997-98 1515 48 18 45991 228.93
1998-99 1787 18 26 107479 133.70
1999-2000 2072 16 26 115495 7.45
2000-01 2612 23 26 122326 5.91
2001-02 3305 26 41 187577 53.34
2002-03 4125 25 52 232048 23.71
2003-04 7890 91 62 403856 74.04
2004-05 14196 80 75 774988 91.89
2005-06 23053 62 84 846155 9.18
2006-07 37482 63 99 940641 11.17
2007-08 51133 36 100 1073075 14.08
2008-09 60702 19 106 1204570 8.78
2009-10 58319 -3.93 117 1307286 8.53

 

Leave a Comment

Your email address will not be published.