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Components of Service Tax Rates in India
Service tax was a tax levied by the government on service providers for the provision of various services, until it was replaced by GST on 1 July 2017. It was a tax collected by the government from different service providers. Service tax could either be paid by the service provider or service receiver. Service tax was a kind of indirect tax because service providers paid the taxes to the government and recovered it from the person who purchased 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 extended to the whole of the country except Jammu and Kashmir. It was imposed on various services which were taxable under 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. The levy remained in force until 30 June 2017, after which GST took its place.
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The negative list referred to the services listed in section 66D of the Finance Act, 1994. Starting 1st July 2012, all services became liable for service tax. According to this regulation, service tax was charged from individual providers as well as from companies in India. This tax was paid by individual providers in the form of cash while companies paid it on an accrual basis. Companies needed to pay the service tax if the value of services provided by them exceeded 9 Lakhs in a financial year.
Proposed Service Tax Rates in India
There was 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 rate was applicable from 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 included Education Cess and Secondary and Higher Education Cess. The rise in service tax rate caused an increase in the cost of mobile bills, restaurant bills etc. The revised rates were 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 was an addition to any Cess or service tax leviable under Chapter V of the Finance Act, 1994. Along with this, the effective service tax rate became 15%. The revenue generated from Krishi Kalyan Cess was used for bringing improvement in agricultural practices and for the welfare of the farmers. This tax had to be deposited in the bank or through online payment of service tax on a monthly or quarterly basis. The 15% rate proved to be the final service tax rate: on 1 July 2017 service tax was abolished and replaced by the Goods and Services Tax (GST).
Payment of Service Tax in India:
An individual could pay service tax both offline and online.
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Online payment
- For payment of service tax online, the taxpayer went to the Central Board of Excise and Customs (CBEC) portal.
- The e-payment option was selected from the tabs on the top of the page.
- After clicking the e-payment option an assessee code was asked for, which was the service tax registration number of an individual allotted by the service tax department.
- In the next step the code for which an individual was required to pay service tax was selected from the list. It was available by clicking the link available in types of duty.
- Then the bank was selected from the drop-down list followed by ‘proceed’.
- After proceeding, the taxpayer was directed to a page to fill the corresponding amount of the codes and pay the service tax amount.
- Upon completion, an acknowledgment for the payment was issued.
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Offline payment
An individual could pay service tax offline by using G.A.R. – 7 which was a challan available only in specified branches of particular banks. For paying service tax the taxpayer was required to fill this challan with the required information and submit it to the bank. In return, the bank accepted the money and stamped the challan identification number.
Offline payment involved 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 was being deposited.
For an individual, proprietor and partnership firm, the due date for the payment of service tax was the 5th and 6th day of the month following every quarter and for a trust and society the due date for the payment was the 5th and 6th day of every month.
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Filing of Service Tax Returns
An assessee needed to file two types of returns: ST-3 and ST-3A to file service tax. The ST-3 return was to be filed by a registered assessee whereas ST-3A was applicable for only those individuals who made a provisional assessment under rule 6(4) of the service tax rules, 1994. Since 1 July 2017, these have been replaced by GST returns.
The ST-3 Return was filed twice in a financial year on a half yearly basis. A service tax return was filed by furnishing details for each month for which the return was to be filed. These details needed to be furnished separately with form ST-3. While filing the returns the assessee could take help from the instructions stated in the application form.
Calculation of Service Tax
The final service tax rate was 15% of the value of taxable services (14% basic rate + 0.5% Swachh Bharat Cess + 0.5% Krishi Kalyan Cess). This rate applied from 1 June 2016 until service tax was abolished on 1 July 2017.
For example: Suppose the value of taxable services was Rs. 30,000, then the
service tax on the taxable services was 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
In case there was an exemption of some amount, say 50%, then service tax was 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 was compulsory for all service providers to register themselves based on the rules and regulations laid down by the government of India. In case the value of services provided by the service provider exceeded Rs. 9,00,000 in a single financial year then it was compulsory for him/her to register but if the value of services provided was less than Rs. 9,00,000 then the service taxpayer had an option to either register or not. Today, suppliers of services register under GST instead — see GST registration.
The various documents required for registering for service tax online were:
- 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 was charged by the central government on construction services provided by builders or real estate developers. Service tax was charged only on the construction cost incurred. There was a reduction of 70% for services like the construction of the complex building, civil structure etc. subject to the fulfillment of the then-existing conditions. According to this, 4.5% service tax was charged on residential properties.
Service tax was applicable only on the purchase of the property directly from the contractors. Service tax was not applicable in case a resold property was purchased. Service tax was charged on the whole amount of the costs like floor rise charges, preferred location charges, initial maintenance charges etc.
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Exemptions Under Service Tax
Usually, service tax was paid on all services except the services included in the negative list of services.
Major exemptions were as listed below:
- An individual service provider could avail exemption on service tax if taxable services provided by him/her were not more than Rs. 9,00,000 per annum.
- Services provided to the United Nations and international organizations.
- Services provided by the developer of a special economic zone or a unit of a special economic zone.
- Service tax was not applicable on services like port services, goods transport services etc.
- Service tax was not applicable to the officers who were on a diplomatic mission.
