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
Case Study
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.
{ 17 comments }
“All service providers in India except those in the state of Jammu and Kashmir are required to pay service tax in India.” … In my opinion this line is erroneous. please let me know if i m wrong.
Hi Kushish
you can refer this extract from bare act
Chapter V of the Finance Act, 1994
Section 64. Extent, commencement and application.
(1) This Chapter extends
1
to the whole of India except the State of Jammu and Kashmir.
(2) It shall come into force on such date as the Central Government may, by notification in the Official Gazette, appoint.
(3) It shall apply to taxable services provided on or after the commencement of this chapter
let me know my mail if any more quries
but sir at present service tax is to be paid on total value at the time of payment or due or service provided whichever is earlier irrespective of partial payment.
I agree with view point of Dinesh, because it is not not only for companies but for all the assessee to pay service tax on accural basis and secondly if service provider in Jammu providing service out of the state of Jammu than it is taxable. Guys rectify me if m wrong.
As per Rule 7 (c) of Point of Taxation Rules, 2011
Individuals or proprietary firms or partnership firms providing taxable services referred to in sub-clauses (p), (q), (s), (t), (u), (za), (zzzzm) of clause (105) of section 65 of the Finance Act, 1994,
shall be the date on which payment is received or made, as the case may be
so all in all, major services provided by individuals, firms have not been taken under accrual basis scheme
let me know my mail any other query. thanks
@ Gagandeep Singh and @ Kushish Bansal: Good observation. With due respect to the author and from both of you, i would like to summarise the matter under consideration with the following statement:
“The modus operandi is ‘destination’ for the leviability of service tax and therefore, all the services rendered in India (except J & K) are liable to Service tax. The principle place of the service provider has no relevance in this regard, the consideration should be provided the place of utilisation of the said services.
Based on above,
1. Service provider of J & K, providing services outside J & K (but in India) shall be liable to pay service tax.
2. Service provider from Rajasthan, providing services in J & K shall not be liable to pay service tax on the said services.
3. Service provider from Rajasthan, providing services to a person (in Delhi) in respect to asset situated in J & K, shall also not be liable to pay Service Tax on the same.
thanks Gaurav, i hope they find it clear now.
Thanks Gaurav..this is what i pointed ..
Hello Sir Can You Explain Central Excise Duty….????
Hello Bhavnoor,
Kindly let me know that only these 7 services on which service tax to be paid on receipt basis and on remaining on accural basis.
Secondly one more query, if a person paid service tax during qtr ended 30.09.11 on accural basis (i.e on Rs.1,00,000.00) and after sept recd payment amounting to Rs.90,000.00, what adjustment made in next return on excess service tax paid on Rs.10,000.00 and is there any req to made intimation to dept before such adjustment, if yes under which rule.
Service tax is based on “Situs of service rendered”.i.e.If a service provider in
J & K provides services in J & K and other parts of India,only the part of the services provided in other parts of India can be brought to tax.
In short,place of providing service is important than the place of service provider for levy.
Hi there
I would like to know when we visit a restaurant, there is a new service tax@3.09%. What exactly is this and why is this levied??
sir what is accrual system of service tax ?
and what are the interest rate of late payment of service tax ?
Can anyone provide a copy of reply to show cause notice issued in case of renting of immovable property (service tax not deposited becz of “Home Retail Solution- Judgement of Delhi High Court”).
Can anyone provide a copy of reply to show cause notice issued in case of renting of immovable property (service tax not deposited becz of “Home Retail Solution- Judgement of Delhi High Court”).
Sir,
Give me all information about service tax in india
explain which items to include & exclude in service tax computation?