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Faster, easier and secure gateway to e-file income tax return

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Service Tax Regulations and Calculations

Defining Service Tax in India

Service tax is levied by the Government of India on certain services and it is a type of indirect tax. when such services are provided by any service provider, they collect this tax from the service receiver and later submit it to the government. It is a kind of tax that taxpayer pay to the government indirectly to receive the prescribed services.

This tax came into force on 1994 with the effect of Finance Act 1994 and imposed on the services taxable under the Section 65 of this act. However, the service ranges were extended and many new services were included under this tax on Budget 2012. The new inclusions made services provided by AC restaurants, hotels, private guest houses, service providing company and individual service providers. The service providing companies have to pay it on an accrual basis where the individual provider can pay by cash. The companies need to pay this tax if their turnover exceeds INR 10 Lakhs a year. The new 2012 inclusions are not applicable in the state of J&K. Also, there are services which do not fall under this tax liabilities and they are listed in the “Negative List” in Section 66D of Finance Act 1994.

Rules and Regulations

In sub-section (1) & (2) of Section 94 of the Finance Act 1994, Central Government has specified the rules for collecting and assessing Service Tax across India.

The concerned rules are discussed here in brief:

Rule 1: Short Title and Commencement

The rules stated in here were made to assess service tax and are Service Tax Rules 1994 and it came into effect on 1st July 1994.

Rule 2: Definitions

This section refers to the various definition and terms used in the Finance Act such as “Act”, "assessment", “banking company”, “body corporate”, “financial institution”, "Form" etc. It also describes "Half year" meaning which indicates the period between 1st April to 30th September or 1st October to 31st March of a financial year. And "quarter" indicates the period between 1st January to 31st March or 1st April to 30th June or 1st July to 30th September or 1st October to 31st December of a single financial year.

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Rule: 3 Appointment of Officers

Central Board of Excise and Customs may appoint a central excise officer if needed to maintain the rules for taxable services.

Rule 4: Registration

Service tax registration is mandatory for every person who is liable to pay service tax. the registration process should be done using the application Form ST - 1 within 30 days from the date of service tax is charged.

Rule 4 (A): Taxable service to be provided or credit to be distributed on invoice, bill or challan

Every registered service provider must have to issue a signed invoice or bill or a challan to the service receiver which will contain the name, address, registration number, name of the recipient, address of the recipient, product description, cost of service provided and the tax amount.

Rule 4 (B): Issue of Consignment Note

While providing, services related to goods transportation, the provider must issue a consignment note.

Rule 5: Records

Central Board of Excise and Custom must need to accept any record that contains computerized data that is maintained and provided by an assessee.

Rule 5 (A): Access to Registered Premises

Any officer with the authorization of commissioner will have access to any premises to complete verification and scrutiny work required for revenue protection.

Rule (6): Payment of Service Tax

Service tax must be paid by the 5th of every month to the central government if paid physically by cash or another mode. In the case of online submission, it needs to be paid by the 6th of every month.

Rule 6 (A) Export of Services

If the service provider is situated in the taxable territory of India and provides services to a recipient situated in abroad then such service providing will be considered as export of services.

Rule 7: Returns

Every assessee must file a half-yearly return by the 25th of the following month when half-year completes for them. The half-yearly return has to submit in Form ST-3 or ST-3A with a copy of Form ST-6 in triple copies for the months covered in the half-yearly returns.

Rule 7 (A) Returns for taxable services provided by transport operators

Transport operators who provide services or goods must file a six-months return and it is in effect from the 13th May 2003. Not filing such return will lead to penalty charges.

Rule 7 (B) Revision of Return

A revised return must be filed with Form ST-3 to edit or modify or correct any mistakes within 90 days from the return submission date.

Rule 7 (C): Amount to be paid for delay in furnishing the prescribed return

If a late return has been filed within the 15 days from the prescribed submission date then, a penalty of INR 500 need to be paid. If the late return filing gets delayed, then a penalty of INR 1000 need to be paid. If the late return exceeds 30 days from the submission date, then the penalty will be INR 1000 + 100/month till you submit it.

Rule 8: Form of Appeals to Commissioner of Central Excise (Appeals)

Form ST-4 need to be used to appeal to Commissioner of Central Excise under section 85 of the Finance Act 1994.

Rule 9: Form of Appeals to Appellate Tribunal

Form ST-5 need to be used to appeal to the Appellate Tribunal under section 86 of the Finance Act 1994.

Rule 10: Procedure and facilities for the large taxpayer

The large taxpayers must submit a separate return for each of their registered premises and may require producing records for verification whenever asked.

Service Tax Rate

From June 2016, the new services tax rate applicable will be 15% which does not require to submit an SHEC or Education Cess separately. The tax collected need to be deposited in a bank or online mood on a monthly or quarterly basis. In the case of excess amount paid by the taxpayer, they can adjust it in next payment or claim a refund. Swachh Bharat Cess and Krishi Kalyan Cess need to be levied on any services that fall under service tax liability.

Paying Service Tax In India

Service Tax can be paid by using the G.A.R-7 Challan which can be obtained from the specific branches or certain banks. This challan needs to be filled accordingly with all required information and needs to be submitted to the particular banks.

Service tax can be also paid online by using the e-payment gateway of Central Board of Excise and Custom. It is mandatory to have internet banking facility with the authorized bank to make online service tax payment.

Individual service providers have to pay service tax on a cash basis while companies have to make it on an accrual basis. The companies need to pay the service tax as soon as they offer services to the recipients.

The partnership firms and individual need to pay service tax on a quarterly basis. The societies, companies, and trusts have to pay service tax on a monthly basis.

Filing Service Tax Returns

The registered taxpayers need to file returns of ST-3 type and the provisional taxpayers file ST-3A return. The provisional type of return filing is prescribed under rule 6(4) of Service Tax Rules 1994. ST-3 need to be filed on a half-yearly basis, and it needs to be accompanied by a GAR-7 challan.

To file Service Tax returns, the taxpayer first needs to register themselves with ACES (Automation Central Excise and Service Tax). This can be done by visiting Central Board of Excise and Customs website. Registering with CBEC will get you a user ID and password and you will need to use that to access Form ST-1. Fill in the form online and make e-payment with your chosen bank. Penalties are prescribed as well if you fail to file a return by the scheduled deadline.

Penalties Set for Late Filing Of Service Tax

Failing to file service tax return can lead to penalty charges as scheduled under Section 76, 77 and 78 of Finance Act, 1994.

The conditions for charging penalty are:

  • Failing to file the ST-3 return within the due date of every year which is 25th October and 25th April can charge a penalty fee up to INR 2,000 depending on the period of delay.
  • If anyone fails to appear before the Central Excise Officer if called for then they have to pay a penalty up to INR 5000 or INR 200 per day from the due date, whichever is higher.
  • If a service provider fails to register their services, it will draw a penalty up to INR 5,000 as mentioned in section 77 of the Finance Act, 1994.
  • Failing into maintaining a record as prescribed by Service Tax law, can draw a penalty up to INR 5,000.
  • Failing to file service tax through online mode by scheduled date can draw a penalty up to INR 5,000.
  • Issuing an incorrect invoice or failing to provide valid evidence for that can draw a penalty of INR 5,000.
  • Attempt to suppress the tax payable value or providing miss-statement of provided services will also draw a heavy penalty.

However, as per Section 80 of the Finance Act, 1994, if a person is able to provide sufficient cause to support the non-filing or delayed the filing of service tax, then they can be exempted from paying any penalty fees.

Service Tax Exemptions in India

Negative list is also prescribed for the services that are not liable to pay service tax and these services are exempt from paying service tax to the government:

  • A small-scale or individual service provider with a yearly income of less them INR 10 lakhs can are exempted from paying service tax.
  • Service recipient can avoid paying service tax for services if they receive a written proof confirming that no duty has bene paid for the service and if it is rendered under CENVAT credit rules.
  • Services provided to the diplomatic mission or to a diplomat or their family members are not liable to be taxed under service tax rules.
  • If port services or goods transport services or containerized transport services or any services received to use for goods export or received by an exporter are non-taxable.
  • Any services provided to United Nations or international organizations are non-taxable.
  • Services provided to a unit of Special Economic Zone or to a developer of Special Economic Zone are non-taxable.

Issuing Invoice

According to Rule 4A of Service Tax Act, 1994, the service tax collector has to issue an invoice within 14 days from providing the services.

The invoice or bill must have the following items in it:

  • Serial number
  • Address and name of the service receiver
  • Registration number, address, and name of the service provider
  • Value of taxable services
  • Classification and description of the rendered services
  • Payable Service tax amount
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