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;
- Name, Registration number, and Address of the concerned person.
- Name and Address of service recipient.
- Value of taxable service provided, Classification and Description, and
- 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 SERVICESÂ | 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 |