Service tax is a tax levied by the government on service providers for the provision of various services. It is a tax collected by the government from different service providers. Service tax can either be paid by the service provider or service receiver. Service tax is a kind of indirect tax because service providers pay the taxes to the government and recover it from the person who purchases the taxable services.
The provisions relating to service tax came into force on July 1, 1994, vide Chapter V of the Finance Act, 1994. It extends to the whole of the country except in Jammu and Kashmir. It is imposed on various services which are taxable under the section 65 of the Finance Act, 1994. Earlier, service tax was payable only on a specified list of services but on 16 March 2012 finance minister Pranab Mukherjee announced that this tax would be applicable on all services except the negative list of services.
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The negative list refers to the services listed in the section 66D of the Finance Act, 1994. Starting 1st July 2012, all services became liable for service tax. According to this new regulation, service tax is charged from individual providers as well as from companies in India. This tax is paid by individual providers in the form of cash while companies pay it on an accrual basis. Companies need to pay the service tax if the value of services provided by them exceeds 9 Lakhs in a financial year.
Proposed Service Tax Rates in India
There has been an increase in the rate of service tax in India after the announcement made by the Finance Minister in the budget 2015. While presenting the budget for 2015 the Finance Minister increased the service tax rate from 12.36% to 14%. This new rate has been applicable since July 1, 2015. Moreover, from 15th Nov 2015, Swachh Bharat Cess at 0.5% was also introduced. So, from 15th Nov 2015, the effective rate of service tax became 14.5%. The revised rate of service tax includes Education Cess and Secondary and Higher Education Cess. The rise in service tax rate usually causes an increase in the cost of mobile bills, restaurant bills etc. The revised rates are levied on both Central and State service providers.
On June 1, 2016, the government introduced Krishi Kalyan Cess at 0.5% of the taxable value of services. Krishi Kalyan Cess is an addition to any Cess or services Tax Leviable under Chapter V of the Finance Act, 1994. Along with this, the effective service tax rate became 15%. The revenue that will be generated from Krishi Kalyan Cess will be effectively used for bringing improvement in agricultural practices and for the welfare of the farmers. This tax is required to be deposited in the bank or through online payment of service tax on a monthly or quarterly basis. The Government of India is progressively increasing the rate of service tax to bring it to the proposed Goods and Services tax rate of around 16-20%.
Payment of Service Tax in India:
An individual can pay service tax both offline and online.
- For payment of service tax online go to Central Board of Excise and Customs (CBEC).
- Select e-payment option from the tabs on the top of the page.
- After clicking e-payment option assessee code will be asked, which will be the service tax registration number of an individual allotted by the service tax department.
- In next step select the code for which an individual is required to pay service tax from the list. It will be available by clicking the link available in types of duty.
- Then select the bank from the drop-down list and click on ‘proceed’.
- After proceeding, you will be directed to a page where you must fill the corresponding amount of the codes and pay the service tax amount.
- Upon completion, you will receive an acknowledgment for the payment.
An individual can pay service tax offline by using G.A.R. – 7 which is a challan available only in specified branches of particular banks. For paying service tax you are required to fill this challan with the required information and submit it to the bank. In return, the bank accepts the money and stamps the challan identification number.
Offline payment involves three important parts:
- Date of depositing tax.
- A serial number of the challan.
- A 7-digit BSR code of the bank in which the service tax is being deposited.
For an individual, proprietor and partnership firm, the due date for the payment of service tax is by 5th and 6th day of the month following every quarter and for trust and society due date for the payment is a 5th and 6th day of every month.
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Filing of Service Tax Returns
An assessee needs to file two types of returns: ST-3 and ST-3A to file service tax. ST-3 return is to be filed by a registered assessee whereas, ST-3A is applicable for only those individuals who make a provisional assessment under rule 6(4) of the service tax rules, 1994.
ST-3 Return is filed twice in a financial year on a half yearly basis. Service tax return is filed by furnishing details for each month for which the return is to be filed. These details need to be furnished separately with form ST-3. While filing the returns assessee can take help from the instructions stated in the application form.
Calculation of Service Tax
The current service tax rate is 15% of the value of taxable services, where 0.5% is for education and SHEC Cess and 0.5% is for Swachh Bharat Abhiyan.
For example: Suppose the value of taxable services is Rs. 30,000, then the
service tax on the taxable services will be calculated in the following manner:
(14/100 x 30,000) + (0.5/100 x 30,000) + (0.5/100 x 30,000) = Rs. 4,500
Incase there is exemption of some amount, say 50%, then service tax will be calculated on the remaining 50% i.e. Rs. 15,000.
(14/100 x 15,000) + (0.5/100 x 15,000) + (0.5/100 x 15,000) = Rs. 2,250.
Procedure for Registering for Service Tax Online
It is compulsory for all service providers to register themselves based on the rules and regulations laid by the government of India. In case the value of services provided by the service provider exceeds Rs. 9,00,000 in a single financial year then it’s compulsory for him/her to register but if the value of services provided is less than Rs. 9,00,000 then service taxpayer has an option to either register or not.
There are various documents required for registering service tax online:
- A copy of PAN (Permanent Account Number).
- One Identity proof and a photograph of the individual filing the application.
- Details of the primary bank account like account number, IFSC.
- Getting authorization by the proprietor/partners/board of directors.
- List of directors, memorandum of association or articles.
- Rent agreement, proof of ownership or allotment letter from the government for establishing possession of the premises to be registered, no objection letter from the legal owner.
- Business transaction numbers assigned from agencies or government departments like company index number, central sales tax number, import export code, a custom registration number which are issued before filing the application for registration of service tax.
Effect of Service Tax on New Property
Service tax is charged by the central government on construction services provided by builders or real estate developers. Service tax is charged only on the construction cost incurred. There is a reduction of 70% for services like the construction of the complex building, civil structure etc. under the fulfillment of existing conditions. According to this, 4.5% of service tax is charged on residential properties.
Service tax is applicable only on the purchase of the property directly from the contractors. Service tax will not be applicable in case the resold property is purchased. Service tax will be charged on the whole amount on the costs like floor rise charges, preferred location charges, initial maintenance charges etc.
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Exemptions Under Service Tax
Usually, service tax is paid on all services except on the services included in the negative list of services./
Major exemptions are listed below:
- An individual service provider can avail exemption on service tax if taxable services provided by him/her are not more than Rs. 9,00,000 per annum.
- Services provided to the United Nations and international organization.
- Services provided by the developer of the special economic zone or a unit of special economic zone.
- Service tax is not applicable on services like port services, goods transport services etc.
- Service tax is not applicable to the officers who are on a diplomatic mission.