Service Tax is an indirect tax levied on taxable services; where the obligation/ liability is of the service provider to collect and deposit service tax.
In 1994, Service Tax was introduced in India by the then Finance Minister Dr. Manmohan Singh – who envisioned services as being a whole new sector from which tax can be collected to increase Government revenue.
At the time India needed revenue and new sources for revenue generation were being sought. Thus, finally on the recommendations of Dr. Raja Chelliah Committee on tax reforms -Service tax was been first levied at a rate of five per cent flat on 15 July 1994.
Previously until July 2012, we had the selected service approach for taxing services – i.e., only those services shall be taxed which were mentioned specifically in the list.
From July 2012 onwards, India has adopted the ‘Negative List’ system – whereby all services are taxable, except those mentioned in the Negative List. The Negative List concept was introduced during Finance Minister Pranab Ray’s regime.
If say, you provide the service of preparing food and selling them in containers to office goers – if such a tiffin service is taxable – then you as the service provider are liable to pay service tax.
How will you pay the service tax? – you will collect the service tax amount, at the prescribed rate, from the service receivers by adding it to the bill amount and then pay the service tax amount so collected into the credit of the government.
Which services are taxable?
Now,
important to know – not all services are taxable. Only those which are ‘taxable
services’ are taxable under service tax!
‘Taxable services’ – means those services which are taxable under the service tax net. In other words,
Taxable Services = All services + Declared Services – Negative List – Any exemptions
ii. Services by Chartered Accountants
iii. Services by beauty salons!
iv. Services by advertising agencies
v. Courier services
vi. Event management services etc.
Now you must be wondering if you maternal aunt, who runs a ladies beauty parlour at her home in South Delhi is liable to collect and deposit service tax – take heart!
Service tax liability arises if the total value of services provided in a financial year exceeds Rs, 10,00,000!
So if you are a service provider – go check if the service you are providing is in the negative list – if so – breathe easy – if not – you’ve got service tax liability and you’ll need to adhere to the very strict service tax formalities, rule and regulations!
i. Services provided by government or local authority
ii. Services provided by RBI
iii. Transmission or distribution of electricity
iv. Services relating to transportation of passengers etc.
Swachh Bharat cess of 2% was proposed in Union Budget 2015 but it's not yet implemented. In case it is implemented then effective rate of Service tax will be 14% + 2% of 14% = 14.28%
2. Service Tax is NOT levied if services are provided, by anyone, in Jammu and Kashmir. So J&K and rest of the world are – not taxable territories!
3. Sometime even the service receiver has to pay the service tax – this is known as reverse charge!
History
At the time India needed revenue and new sources for revenue generation were being sought. Thus, finally on the recommendations of Dr. Raja Chelliah Committee on tax reforms -Service tax was been first levied at a rate of five per cent flat on 15 July 1994.
Previously until July 2012, we had the selected service approach for taxing services – i.e., only those services shall be taxed which were mentioned specifically in the list.
From July 2012 onwards, India has adopted the ‘Negative List’ system – whereby all services are taxable, except those mentioned in the Negative List. The Negative List concept was introduced during Finance Minister Pranab Ray’s regime.
How to calculate Serviec Tax
Okay just to simply a whole lot of pages worth theories, here’s a numerical example:If say, you provide the service of preparing food and selling them in containers to office goers – if such a tiffin service is taxable – then you as the service provider are liable to pay service tax.
How will you pay the service tax? – you will collect the service tax amount, at the prescribed rate, from the service receivers by adding it to the bill amount and then pay the service tax amount so collected into the credit of the government.
Your bill amount will be:
Tiffin Charges for March ‘15 = Rs. 10,000.00
Add: S. Tax and E.Cess @ 12.36% = Rs. 1,236.00
--------------------
Total bill amount = Rs. 11,236.00
So, you the service provider collects Rs. 11,236 from your customer – you keep your Rs. 10,000 for yourself (your income) and deposit Rs. 1,236 into the Government’s account as service tax collected.
Service providers collect service tax from every customer, per bill, and deposit them monthly/ quaterly.
Thus, you can see the incidence of the service tax is actually on us – the service receivers.
So, now you know when you go to a restaurant you end up paying a lot more than what you had ordered!!
It all that tax!
Tiffin Charges for March ‘15 = Rs. 10,000.00
Add: S. Tax and E.Cess @ 12.36% = Rs. 1,236.00
--------------------
Total bill amount = Rs. 11,236.00
So, you the service provider collects Rs. 11,236 from your customer – you keep your Rs. 10,000 for yourself (your income) and deposit Rs. 1,236 into the Government’s account as service tax collected.
Service providers collect service tax from every customer, per bill, and deposit them monthly/ quaterly.
Thus, you can see the incidence of the service tax is actually on us – the service receivers.
So, now you know when you go to a restaurant you end up paying a lot more than what you had ordered!!
It all that tax!
Which services are taxable?
Now,
important to know – not all services are taxable. Only those which are ‘taxable
services’ are taxable under service tax!‘Taxable services’ – means those services which are taxable under the service tax net. In other words,
Taxable Services = All services + Declared Services – Negative List – Any exemptions
Examples:
i. giving the right to use intellectual property right (declared service)ii. Services by Chartered Accountants
iii. Services by beauty salons!
iv. Services by advertising agencies
v. Courier services
vi. Event management services etc.
Now you must be wondering if you maternal aunt, who runs a ladies beauty parlour at her home in South Delhi is liable to collect and deposit service tax – take heart!
Service tax liability arises if the total value of services provided in a financial year exceeds Rs, 10,00,000!
Negative List?
The current service tax laws provide that all services as such are taxable – except for those mentioned in the negative list.So if you are a service provider – go check if the service you are providing is in the negative list – if so – breathe easy – if not – you’ve got service tax liability and you’ll need to adhere to the very strict service tax formalities, rule and regulations!
i. Services provided by government or local authority
ii. Services provided by RBI
iii. Transmission or distribution of electricity
iv. Services relating to transportation of passengers etc.
What is the rate of service tax?
The rate of service tax is 14%Swachh Bharat cess of 2% was proposed in Union Budget 2015 but it's not yet implemented. In case it is implemented then effective rate of Service tax will be 14% + 2% of 14% = 14.28%
Trivia:
1. Service Tax is levied in ‘taxable territory’, which includes the Indian mainland – territorial waters and the airspace above it.2. Service Tax is NOT levied if services are provided, by anyone, in Jammu and Kashmir. So J&K and rest of the world are – not taxable territories!
3. Sometime even the service receiver has to pay the service tax – this is known as reverse charge!
Latest news on service tax:
- In
budget 2015 a higher rate of 14% (inclusive of Education Cesses) was
proposed which will come to effect after the approval of the finance bill;
which is proposed to be pushed for approval in the second budget session
starting after 20th April 2015.
- Service
Tax exemption has been granted, w.e.f. 1 April 2015 to the services
given by zoos, national parks, wildlife sanctuaries, tiger reserves and
museums = they don’t have the obligation to deduct service tax from
the public via the tickets.
- Exemption
from service tax liability is also forwarded to:
i. Services by life insurance scheme – Varishtha Pension Bima Yojna,
ii. Retail packing of fruits and vegetables,
iii. Ambulance services
iv. Construction services, when given to Government, in respect of historical monuments, irrigation work, water supply and sewage treatment plants,
v. services provided by folk and classical artists is exempt if the amount charged by them as fee is less than Rs. 1,00,000
vi. Transportation of food grains, including rice and pulses, milk and salt only, via road, rail or vessel is exempt
- Increase
in service tax on air travel services. Earlier service tax was levied on
40% of the ticket value – if your ticket costs Rs. 1000, then service tax
will be levied on Rs. 400 – this 40% has now been increased to 60%.
- Service
tax will be levied on the services provided in the following cases:
i. by Mutual Fund agents
ii.
marketing of lottery tickets
iii. Departmentally run public telephones
iv. Free telephone calls from airports and hospitals
v. by chit fund foremen
vi. Exemption given earlier stands withdrawn for construction, erection, commissioning or installation of original works with regards to airports or ports.
iii. Departmentally run public telephones
iv. Free telephone calls from airports and hospitals
v. by chit fund foremen
vi. Exemption given earlier stands withdrawn for construction, erection, commissioning or installation of original works with regards to airports or ports.
Have a
good day!
