Budget 2015 Update: Finance Minister while presenting the Budget 2015 has increased the Service Tax Rate from 12.36% to flat 14%.
However, the date from which the new Service tax rate is applicable was not announced in the Budget. On 19th May, the Finance Ministry vide Notification No. 14/2015 announced that the new Service Tax Rate @ 14% would be applicable from 1st June.
The rate of Service Tax for services provided before 1st June is 12.36% and for services provided after 1st June is 14%. The Notification can be downloaded from here – Notification No. 14/2015 for applicability of Service Tax @ 14% from 1st June.
If the Invoice is raised in the month of May 2015 for Services to be provided in June 2015 – Rule 4(b) of Point of Taxation Rules will apply and the rate of service tax applicable would be the date on which the payment is being made. For more on this kindly refer: Rate of Service Tax if invoice raised in May 2015 for services to be provided in June 2015
The meaning and applicability of Service Tax has been explained below in simple words for Beginners
When we use any service be it a phone bill payment or Hire a room in a hotel we have to pay out little more than the actual rates charged. Ever wondered why? The reason is very meek, we are made to pay service tax over and above the usual charge but the bigger question is What is Service Tax, why do we have to pay this Tax when the tax is applicable on the company providing the service and also what is the Service Tax Rate. If these questions bother you, find answers below.
What is Service Tax?
It is a tax which is payable on services provided by the service provider. Just like Excise duty is payable on goods which are manufactured, similarly Service Tax is payable on Services provided.
This Tax is payable by the provider of Service to the Govt. of India. However, the Service Provider can collect this Tax from the Consumer of Service (also referred to as Recipient of Service) and deposit the same with the Govt.
Recommended Read: Due Date for Payment of Service Tax
Applicability of Service Tax
This tax came into effect in 1994 and was introduced by the then Finance Minister Dr. Manmohan Singh.
Earlier Service Tax was payable only on a specified list of services but Pranab Mukherjee while delivering his budget speech on 16th March 2012 announced that this Tax would be applicable on all services except the negative list of services. From 1st July 2012 onwards, all services (except those specified in the negative list of services by the Govt) are now liable for service tax.
However, there are some services which are composite services. For eg: Food being served in a Restaurant. Although VAT is levied on Food, but we don’t go to a Restaurant only to have Food but also to avail the services of the waiters, kitchen staff etc. Therefore, Service Tax is also levied on Food served in Restaurant. In such cases, it is practically impossible to segregate how much the customer has paid for the food and how much he has paid for the services.
Such services are popularly known as Composite Services and in such cases an abatement scheme is announced by the govt under which Service Tax is only levied only on a specified portion of the Total Bill.
Recommended Read: Service Tax in Restaurant is to be levied only on 40% of the Food Bill
Service Tax on Cash Basis
Earlier Service Tax was charged on cash basis for every service provider. Currently, it is charged on cash basis for Individual service providers and for companies it is being charged on accrual basis i.e companies liability to deposit tax arises as soon as services are provided irrespective of the collection of funds on the same.
However Individual Service Providers have to deposit this Tax with the Govt only when the Invoice Amount has been collected. Service Tax Payment is deposited by the Service Provider with the Govt. quarterly in case of Individuals/Partnership and Monthly in all other cases.
Moreover, every Service Provider is now required to apply for Service Tax Registration if the Value of Services provided by him during a Financial Year is more than Rs. 9 Lakhs, but the Tax would be payable only when the Value of Services provided is more than Rs. 10 Lakhs.
All service providers in India, except those in the state of Jammu and Kashmir, are required to pay this tax in India. Service Tax is not levied on the persons residing in Jammu & Kashmir.
Service Tax Rate
The Current of Service Tax Rate is 12%
Education Cess @ 2% and Senior and Higher Education Cess @ 1% are also liable to be payable on the above Service Tax Rate.
Service Tax Rate = 12%
(+) Education Cess @ 2% = 0.2%
(+) Senior & Higher Education Cess @ 1% = 0.1%
Effective Service Tax Rate = 12.36%
This Tax is required to be deposited on a Monthly/Quarterly basis. It can be paid either by manually depositing in the Bank or through Online Payment of Service Tax. In case, of excess payment of Tax by the Service Provider with the Governement, the Service Provider can either adjust the excess amount paid or can claim Refund of the Excess Tax deposited. Refer: Service Tax Refund
Let’s understand via simple case, If a Chartered Accountant, provides services in the capacity of auditor to ABC Ltd. and the audit fees is Rs. 1,00,000 then the service tax chargeable will be 12.36% on Rs. 1,00,000 i.e. INR 12,360. Hence, the total billing to be done by CA to ABC Ltd will be INR 1, 12,360.
The segregation of Value of Service Provided (i.e. Rs. 1,00,000) and the Tax payable thereon (i.e. Rs. 12,360) shall be separately showing on the Invoice.
In case, no tax is separately charged in Invoice or the service receiver makes partial payment then the service tax shall be proportionately taken to be amount as on the gross amount received by the service provider for the taxable service provided or to be provided by him.