Service Tax is required to be paid on all services except those specified in the negative list of services. However, a small scale service provider has the option of availing service tax exemption in case the aggregate turnover value of taxable services does not exceed Rs 10 Lakhs in a financial year.
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Therefore, if the aggregate value of services does not exceed Rs. 10 Lakhs in a financial year, the service provider can claim benefit of this service tax exemption and he won’t be required to pay any service tax on such services.
Although Service Tax is required to be paid only when the aggregate value of services provided exceeds Rs. 10 Lakhs in a financial year, the service tax provider is required to apply for Registration for Service Tax within 30 days of his turnover exceeding Rs. 9 Lakhs.
The service provider also has the option of not availing this exemption and can pay service tax irrespective of his total aggregate turnover. However, once the service provider starts paying service tax during any financial year, such option shall not be withdrawn during the remaining part of such financial year.
The concept of Service Tax Exemption was first introduced in the year 2005 vide Notification No. 6/2005 wherein aggregate services below Rs 4 Lakhs were exempted from service tax. This limit was increased to Rs 8 Lakhs in year 2007 vide Notification no 4/2007 and then increased to Rs 10 Lakhs in year 2008 vide Notification No 8/2008
Conditions for availing Service Tax Exemption
Service Tax Exemption shall apply subject to the following conditions:-
1. Turnover in the previous financial year
The aggregate value of taxable services rendered by a service provider shall not exceed Rs. 10 Lakhs during the previous financial year. In other words, service tax exemption can only be claimed if in both the previous as well as the current financial year, the aggregate value of taxable services does not exceed Rs. 10 Lakhs.
If in any financial year, the aggregate value of services exceeds Rs. 10 Lakhs, the service provider would not be allowed to claim this small scale exemption and would be required to pay Service Tax.
2. CENVAT Credit
The service provider shall not avail the CENVAT Credit of the tax paid on any input or input services used for providing the service for which the exemption has been availed. The service provider shall also not avail the CENVAT credit on capital goods received during the period in which the exemption has been availed
Moreover, the service tax provider who starts availing the small scale service tax exemption shall be required to pay an amount equivalent to the CENVAT credit taken by him, if any, in respect of such inputs lying in stock or in process on the date on which the service tax provider starts availing the small scale service tax exemption.
The balance of CENVAT credit lying unutilised after deducting the said amount, if any, shall not be utilised and shall lapse on the day the service provider starts availing this exemption.
3. Non applicability of Service Tax Exemption
This small scale service tax exemption shall not apply in cases where Reverse Charge is applicable.
This small scale exemption shall also not be applicable where taxable services are provided by a person under a brand name or trade name, whether registered or unregistered of any other person.
4. Meaning of Aggregate Value of Turnover
Aggregate Value not exceeding Rs. 10 Lakhs means the sum total of first consecutive payments received during a financial year towards the gross amount, as prescribed under Section 67, but does not include payments received which are exempt from whole of service tax under any other service tax exemption notification.
Moreover, where the service tax provider provides 1 or more services from 1 or more premises, the exemption shall apply to the aggregate value of all such services and from all such premises and not separately for each premises or services