Before we venture into the world of Service Tax Rate, let us first understand what Service tax is. One must make an important note that after the new proposal brought in during the 2016 Union Budget, the applicable service tax from June 1, 2016 was "15%" which has ceased to exist as GST came into effect since July 1, 2017. In simple terms, Service Tax and its respected revised rate has been replaced by GST.
Service tax is a tax levied by the government on service providers on certain service transactions, but is actually borne by the customers. It is categorized under Indirect Taxes and came into existence through the Finance Act, 1994 which governs the taxability of services provided by an individual or a company under Section 66B. In actual terms, it is an indirect tax wherein the service provider collects the tax on services from the service receiver and pays the same to the Government of India. One such example where all citizens feel the maximum blow of this tax is while paying the restaurant bill and suddenly our wallets go for a toss because we just cannot understand where the additional zeros have come up! This happened in the 2012 Budget where the scope of service tax was increased - which implied that services provided by restaurants, (especially air-conditioned) private hotels & lodges, guest houses were included in the list of service renderers. (As compared to earlier where the tax was levied on a specified list of services). It is charged to an individual on a cash basis and on corporates at an accumulated basis, payable only when the services provided in that particular financial year exceeds Rs.10 lac.
Service tax rules are not applicable to the state of Jammu and Kashmir
Negative list: services mentioned in the negative list are not liable to service tax (services listed in section 66D of the Finance Act,1994
Service tax came into effect in 1994 and was introduced by then finance minister Dr. Manmohan Singh. In the 2012 Union Budget, finance minister Pranab Mukherjee established that this tax will be applicable on all services from July 1, 2012, except to the exclusions mentioned above.
For restaurants, there are certain services called composite services - those which are levied on the food being served. (the reason being that we visit restaurants to avail the services offered by the waiters, therefore, service tax is charged on the food being served.) Since it is difficult to distinguish between how much a customer has paid for the food from the services rendered by the waiter, the government has announced an abatement scheme under which service tax is levied only on a specified portion of the total bill.
Back in the year 1993 - 1994, Service Tax started out at a nominal 5% but at the end of its reign till June 2016 it stood tall at 15%. Over the years there have been numerous revisions to the rate of service tax. It is generally the finance ministry that announces the change in the service tax rate during the budget session of the parliament presented by the finance minister.
It was increased to 14% from its previous rate of 12.36% for transactions that happened on or after 1 June 2015 and then for transactions that occurred on or after 15 Nov 2015, the new Swachh Bharat Cess at 0.5% was added. Therefore, the effective rate became 14.5% from 15 Nov 2015. For transactions that occurred on or after 1 June, 2016, this tax was increased to 15%. In 2016, the Union Budget of India proposed to impose a cess, called the Krishi Kalyan Cess at 0.5% on all taxable services effective from 1 June, 2016.
The last service tax rate was 15%, it can be simply be divided into 3 parts:
Basic Rate = 14%
Swachh Bharat Cess = 0.5%
Krishi Kalyan Cess = 0.5%
As shown above, Swacch Bharat Cess and Krishi Kalyan Cess was levied on all services on which service tax is being levied, hence the overall rate became 15%.
Let us understand this calculation through a simple example of a Consultant A offering management skills to a Firm B for a fee of Rs. 1,00,000. Since the ‘skills’ of Consultant A are acquired through effective management practice, it is categorised as a service offered to the Firm B. (The consultant has spent considerable time and effort within their capacity to assist the firm for a charge) With Swachh Bharat Cess and Krishi Kalyan Cess, the total fee will be Rs. 1,15,000. This implies that the value of services provided was Rs. 1,00,000 and the taxes payable was Rs. 15,000.
In case no tax has been charged as per the invoice, or the firm makes partial payment then the service tax would be proportionally calculated on the basis of the gross amount received by consultant A for the services provided by him/her.
All service providers are required to apply for Service Tax Registration with the government (under the Central Board of Excise and Customs) if the value of services provided by them is above Rs. 9 lakhs but the tax will be payable only if the value of these services provided is above Rs. 10 lakhs for a particular financial year. Once registered successfully, they can pay online through internet banking or by using G.A.R - 7 challan which is available in various bank branches across India. The time and duration for payment vary as per the mode chosen and the service renderer. For individuals and partnership firms paying online, the time of payment is on a quarterly basis with a due date of 6th of the subsequent quarter and 5th of the subsequent quarter for physical payment. For companies and others paying online, the time of payment is on a monthly basis with a due date of 6th of the subsequent month and 5th of the subsequent month for physical payment.
Just like income tax returns (ITR), we have Service Tax Returns. The service provider needs to file for returns online on a half yearly basis as soon as they have started paying service tax regularly, that is by 25th October and 25th April for half year period ending in September and March. Through online mode of payment, the entity or individual can issue digitally signed invoices and electronically maintain service tax records.
To begin with, a service provider needs to file two types of returns ST- 3 Return and ST- 3A Return. ST-3 Return is applicable for service providers who have already registered themselves. ST-3A Return is applicable for those who make provisional assessment under rule 6(4) of the Service Tax Rules, 1994. The registered providers need to file ST- 3 Return twice in a financial year on half yearly basis with details of each month for which the return is filed. (These details need to be furnished separately with Form ST- 3) Apart from all of these in-hand, the entire application form needs to be accompanied by a G.A.R - 7 Challan mentioned before.
For service providers who intend to file online, they need to register with ACES (Automation Central Excise and Service Tax) under the Central Board of Excise and Customs. Post this, the website provides a specific user ID and password to be used as credentials in order to gain access to FORM ST-1. After filling the form with the required information, there is an option to make an e-payment with respect to different listed banks. In case of a typographical error, the same can be revised as per the correct order.
Important things to consider:
Although all service providers (including government and private sector) are liable to pay service tax, there are a few exceptions wherein service providers can avoid paying service tax.
If total revenue does not exceed Rs. 10 lakhs for a particular financial year, a small scale vendor need not pay service tax
If the services rendered are under the CENVAT Credit rules
Service tax is not applicable to families with diplomatic immunity and who render such services as diplomatic missionaries
Goods and services for which the service tax has been paid by the exporter
Services to International organisations (UN, WHO, ICJ) are not taxable
Service providers operating in a Special Economic Zone or as a part of a Special Economic Zone
Section 66D: States a list of such services on which service tax is not collected. The taxability does not arise for these services. The list of such services is known as negative list.
Section 66C: It is very important to identify the place of service provision as the tax is levied on services rendered in taxable territory. This section states the rules to identify the place of provision so that there is no ambiguity.
Section 66E: This section provides for a list of activities of multiple nature that are deemed to be services. These are known as declared services. Service tax is applicable on all the services mentioned in the list.
Though this tax was tedious in its modus operandi, (hence it was replaced by GST) the collections over the prior years have contributed significantly to the wheels of Indian economy.
What is Service Tax?
Service Tax is a type of indirect tax which use to be paid by service providers for their services rendered. It’s similar to excise duty where an amount is payable on goods that are manufactured. It’s a type of indirect tax that is collected by the Government after consuming the taxable services provided by travel agents, restaurants, cable providers, cab services etc. Service tax was announced in the year of 1994 as a part of the Finance Act per section 65. It has ceased to exist with the implementation of GST.
Can Service Tax be paid online?
Yes, by visiting the website of Central Board of Excise and Customs one can pay the required service tax amount. The previous rules state that online payment of service tax is mandatory to all eligible income tax players. Certain exceptions can be made for specific requests to allow manual payment. Online service tax payment can be done by visiting www.cbec-easiest.gov.in. Individuals or partnership or proprietary farms need to make the payment on a quarterly basis.
What was the last declared total rate of service tax?
The last declared total rate for service tax was 15% till June 2016. Usually it is the finance ministry that announces the change in the service tax rate during the budget session of the parliament. The rate increased in 2015, from 12.36% to 14% and it was revised again in 2016 from 14% to 15% that included 0.5% ‘Krishi Kalyan’ cess and 0.5% ‘Swachh Bharat’ cess.
What is G.A.R - 7 Challan?
It is a challan by which a service provider can pay service tax manually. GAR-7 challan is the document for payment of service tax. GAR-7 challan is available in any stationary shop selling government forms. The format is also given on the web-site cbec.gov.in.
What are the two types of returns to be filed?
The two types of returns that are to be filed are ST- 3 and ST- 3A. ST-3 Return is applicable for service providers who have already registered themselves. ST-3A Return is applicable for those who make provisional assessment under rule 6(4) of the Service Tax Rules, 1994. The registered providers need to file ST- 3 Return twice in a financial year on half yearly basis with details of each month for which the return is filed.
In which year did service tax come into effect?
Service Tax came into effect into India in the year 1993-1994. Service tax is described in detail under Section 65B (44) of the Finance Act of 1984. This Act clearly mentions the complete list of services that fall under the purview of service tax. It also includes the ‘Negative List’ which are non-taxable list of services and is mentioned under Section 66D of the Finance Act. Also, there are certain ‘Special services’ too that are exempted from service tax.
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