Service Tax

Service tax was a tax levied by the Central Government of India on services provided or agreed to be provided excluding services covered under negative list and considering the Place of Provision of Services Rules, 2012 and collected as per Point of Taxation Rules, 2011 from the person liable to pay service tax. Person liable to pay service tax is governed by Service Tax Rules, 1994 he may be service provider or service receiver or any other person made so liable. It is an indirect tax wherein the service provider collects the tax on services from service receiver and pays the same to government of India. Few services are presently exempt in public interest via Mega Exemption Notification 25/2012-ST as amended up to date and few services are charged service tax at abated rate as per Notification No. 26/2012-ST as amended up to date. Presently from 1 June 2016, service tax rate has been increased to consolidated rate at 14% +0.5%+0.5%= 15% of value of services provided or to be provided. The service tax rate now is consolidated rate as education cess and secondary higher education cess are subsumed with 2% of "Swach Bharat Cess(0.50%)" has been notified by the Government.

From 15 November 2015, the effective rate of service tax plus Swachh Bharat Cess, post introduction of Swachh Bharat Cess, was 14.5%. Currently, Swachh Bharat Cess and Krishi Kalyan Cess would also be levied on all services on which Service Tax is being levied and therefore, the Service Tax (including Swachh Bharat Cess and Krishi Kalyan Cess) applicable from 1 June 2016 has become 15%.

During the 2015 budget, the Finance Minister had incremented the service tax rate from 12.36% to 14%, which had been applicable from 1 June 2015. Further, from 15 November 2015, an additional Swachh Bharat Cess got added at the rate of 0.5%, which left the service tax at 14.5%. After the new proposal brought in during the 2016 Union Budget, the applicable service tax from 1 June 2016 is 15%.

History

Dr. Raja Chelliah Committee on tax reforms recommended the introduction of service tax. Service tax had been first levied at a rate of five per cent flat from 1 July 1994 till 13 May 2003, at the rate of eight percent flat w.e.f 1 plus an education cess of 2% thereon w.e.f 10 September 2004 on the services provided by service providers. The rate of service tax was increased to 12% by Finance Act, 2006 w.e.f 18.4.2006. Finance Act, 2007 has imposed a new secondary and higher education cess of one percent on the service tax w.e.f 11.5.2007, increasing the total education cess to three percent and a total levy of 12.36 percent. The revenue from the service tax to the Government of India have shown a steady rise since its inception in 1994. The tax collections have grown substantially since 1994–95 i.e. from ₹410 crore (US$57 million) in 1994–95 to ₹132,518 crore (US$19 billion) in 2012–13. The total number of Taxable services also increased from 3 in 1994 to 119 in 2012. However, from 1 July 2012 the concept of taxation on services was changed from a 'Selected service approach' to a 'Negative List regime'. This changed the taxation system of services from tax on some Selected services to tax being levied on the every service other than services mentioned in Negative list.[1]

Under the Service tax from the year of original levying year of 1994 are constantly growing. The collections are shown as in the following table:

Financial YearRevenue Rupees(in crores)Number of servicesNumber of Assessees
1993–199425422568
1994–199540733943
1995–199686264866
1996–19971059613982
1997–199815861845991
1998–1999195726107479
1999–2000212826115495
2000–2001261326122326
2001–2002330241187577
2002–2003412252232048
2003–2004789162403856
2004–20051420075774988
2005–20062305584846155
2006–20073759899940641
2007–2008513011001073075
2008–2009609411061204570
2009–2010584221091307286
2010–2011710161171372274
2011–2012975091191535570
2012–2013132518Negative List Regime1712617

Rates

Service Tax which started out at a nominal 5% is now at 15%.

It was increased to 14% 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 also added to the Service Tax. Therefore, the effective rate became 14.5% with effect from 15 Nov 2015.

For transactions that occurred on or after 1 June 2016 this tax is at 15%.[2] 2016 Union budget of India has proposed to impose a cess, called the Krishi Kalyan Cess, at 0.5% on all taxable services effective from 1 June 2016. The current service tax is at 15%.[3]

With introduction of Krishi Kalyan Cess[4] at 0.5% w.e.f 1 June 2016, effective rate of Service tax would eventually go up to 15%, which was earlier increased to 14% (with subsumation of Education Cess and Secondary and Higher Education Cess) from 12.36% w.e.f 1 June 2015 and Swachh Bharat Cess at 0.5% on value of all taxable services imposed w.e.f 15 November 2015. Krishi Kalyan Cess, which was announced during the 2016–17 Budget, has become applicable from 1 June. A tax of 0.5% would be levied over and above the Service Tax and Swachh Bharat Cess. Till 31 May 2016, the Service Tax rate was 14.5%. With Krishi Kalyan cess, the service tax would increase to 15%. While Swachh Bharat Cess was levied to conduct cleanliness drive in India, the new cess has been levied for the purpose of financing and promoting initiatives to improve agricultural growth.

  • 14/05/2003 – 09/09/2004 – 8%
  • 10/09/2004 – 17/04/2006 – 10.20%
  • 18/04/2006 – 10/05/2007 – 12.24%
  • 11/05/2007 – 23/02/2009 – 12.36%
  • 24/02/2009 – 31/03/2012 – 10.30%
  • 01/04/2012 – 31/05/2015 – 12.36%
  • 01/06/2015 – 14/11/2015 – 14%
  • 15/11/2015 – 31/05/2016 – 14.5% (14% Service Tax + 0.50% Swach Bharath Cess)
  • 01/06/2016 – 30/06/2017 – 15% (14% Service Tax + 0.50% Swach Bharath Cess + 0.50% Krishi Kalyan Cess)

Small scale exemption

Service tax is only liable to be paid in case the total value of the service provided during the financial year is more than ₹10 lakh (US$14,000). If the value of services provided during a preceding[5] financial year is less than ₹10 lakh (US$14,000), only then this exemption is applicable in the current financial year. it is optional for he wants to avail this exemption or not.[6]

Negative list

Budget 2012 revamped the taxation provisions for services by introducing a new system of taxation of services in India. In the new system all services, except those specified in the negative list, are subject to taxation. Earlier the levy of service tax was based on positive list—specified 119 taxable services.[7]

As per clause (34) of section 65B of the Finance Act, 1994, the term "Negative List" means the services which are listed in section 66D.[8]

Registration of Service Tax

As per Service Tax Law it is mandatory for the following categories of persons to obtain registration :-

  • Every person liable to pay service tax under Reverse Charge
  • An input service distributor
  • Every provider of taxable service whose aggregate value of taxable service exceeds 9 lakhs in a financial year.

Every person mentioned above will have to get themselves registered under the service tax law within 30 days from the date of commencement of such service or business.

Whereas in case of service provider whose aggregate value of taxable service not exceeded 9 lakhs in a financial year not need to obtain registration, where in case he has obtained registration he is liable to payment of service tax only if the value of taxable services exceeds 10 lakhs rupees.[9]

Service Tax Invoices

Rule 4A prescribes that taxable services shall be provided and input credit shall be distributed only on the basis of a bill, invoice or challan. Such bill, invoice or challan will also include documents used by service providers of banking services (such as pay-in-slip, debit credit advice etc.) and consignment note issued by goods transport agencies. Rule 4B provides for issuance of a consignment note to a customer by the service provider in respect of goods transport booking services.[10]

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References
  1. (PDF) https://web.archive.org/web/20140202122301/http://www.servicetax.gov.in/ovw/ovw4_analysis-st-rev-ason120913.pdf. Archived from the original (PDF) on 2 February 2014. Retrieved 26 January 2014. Missing or empty |title= (help)
  2. "Home Page of Central Board of Indirect Taxes and Customs" (PDF).
  3. "Budget 2016: Service tax proposed to be increased from 14.5% to 15%", The Economic Times, 29 February 2016
  4. "Krishi Kalyan Cess". 28 May 2016.
  5. "No Service Tax Up to 10 Lakhs Value of Services Rendered- Small Service Providers Scheme". The Tax Info. Retrieved 11 June 2016.
  6. Karan Batra (29 February 2016). "All about Service Tax & new Service Tax Rate @ 14.5%". Chartered Club.
  7. "Service Tax Procedures". Central Board of Excise and Customs, Department of Revenue, Ministry of Finance, Government of India.
  8. https://web.archive.org/web/20130703114544/http://www.aubsp.com/2013/06/services-tax-negative-list-66d.html. Archived from the original on 3 July 2013. Retrieved 24 June 2013. Missing or empty |title= (help)
  9. http://www.actrules.com/2016/06/service-tax-introduction.html
  10. "INVOICE FOR SERVICE TAX". TopCAfirms. Retrieved 4 December 2013.
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