General background
Service tax comes under powers of Entry 97 of List I of Seventh Schedule to Constitution of India. Service tax was introduced w.e.f. 1-7-1994 and its scope is being expanded every year. Service tax is not payable if service is provided in J&K or if provided outside India.
Service tax and GST are taxes of 21st century. Service tax was imposed for first time on 3 services w.e.f. 1-7-1994 and its scope is increasing every year.
Taxable event in service tax
Service tax is imposed under section 66 of Finance Act, 1994, which is the charging section [There is no separate Service Tax Act s such]. ‘Service provided or to be provided’ is ‘taxable event’. Thus, service tax is payable when advance is received.
Taxable services
Service tax is payable under Finance Act, 1994; on about 117 taxable services as defined in section 65(105) of Finance Act, 1994.
Service requires two parties
Service requires two parties. One cannot give service to himself.
Tax only on value of services not on value of goods
Service tax cannot be levied on value of goods. Service tax and Vat are mutually exclusive.
Rate of service tax
General rate of service tax is 10.30% (including education cess and SAH education cess) w.e.f. 24-2-2009 [During period 11-5-2007 to 23-2-2009, it was 12.36%]. In some cases, abatement is available.
Education cess to be shown and paid separately
Education cess and SAHE cess should be shown separately in invoice and should be paid under separate accounting head.
Person liable to pay service tax
Liability of service provider
Service tax is payable by service provider. In few cases, tax is payable by service receiver, under reverse charge method [Section 68(2)].
Reverse charge
In case of Goods Transport Agency (GTA), Import of Service, Sponsorship service and Agent of mutual fund and insurance, service tax is payable by service receiver.
Value for purpose of service tax
Service Tax on gross amount charged
Service tax is payable on gross amount charged for taxable service provided or to be provided [section 67] (excluding material cost)..
Tax on reimbursement of expenses
Tax is payable on reimbursement of expenses which are part of service, but not on payments made by service provider as ‘pure agent’ of service receiver Service tax not payable if amount received only as agent of service receiver
Service tax is not payable on amounts collected by service provider from service receiver which are not part of service but are paid by service provider to third parties for administrative convenience and then recovered from service receiver, even if all requirements of definition of ‘pure agent’ are not satisfied.
Value on basis of similar service or cost
If value is not ascertainable, valuation can be on basis of similar service or on basis of value which shall not be less than cost.
Gross amount charged is inclusive of service tax
Gross amount charged for taxable service is taken as inclusive of service tax and then tax should be calculated by making back calculations.
Exemption from service tax
Exemption to small service providers
Small service providers whose total value of services provided (including exempt and non-taxable services) is less than Rs 10 lakhs in previous year are not required to pay service tax in current financial year till they reach turnover of Rs 10 lakhs. Clubbing provisions can apply. Registration is required if turnover exceeds Rs 9 lakhs per annum.
No exemption if service provided under brand name of other
The exemption is not available if service is provided under brand name of other person.
No exemption when service tax is payable under reverse charge method
This exemption is not available when service tax is payable by service receiver under reverse charge method.
Abatement and simplified method of payment of taxes
In case of some services, abatement is available. In case of some services, simplified method of calculating value of service has been prescribed.
Services to SEZ and SEZ Developer
Services provided to SEZ unit or developer are exempt if wholly consumed within SEZ. In case of services consumed by SEZ outside SEZ, refund claim has to be filed.
Services provided by RBI exempt but services provided to RBI taxable
Services provided by RBI are exempt but service provided to RBI are not exempt.
Disclaimer: In this note, we have attempted to summarise some of the significant aspects to be kept in mind by readers to ensure compliance of tax laws and regulations. Readers should ensure to verify specific provisions as applicable to each case before taking any business decisions. It would be pertinent to note that some changes are being made to the tax laws and rules and regulations on a continuous basis by way of notifications, clarifications etc issued by the department based on their practical experience in implementing the legislation.
Disclaimer: In this note, we have attempted to summarise some of the significant aspects to be kept in mind by readers to ensure compliance of tax laws and regulations. Readers should ensure to verify specific provisions as applicable to each case before taking any business decisions. It would be pertinent to note that some changes are being made to the tax laws and rules and regulations on a continuous basis by way of notifications, clarifications etc issued by the department based on their practical experience in implementing the legislation.
It may be noted that nothing contained in this note should be regarded as our opinion. Professional advice should be sought for applicability of legal provisions based on specific facts. Though reasonable efforts have been taken to avoid errors or omissions in this note we are not responsible for any liability arising to readers directly or indirectly due to any mis-statements or error contained in this note. It must be noted that the views expressed in the note are based on our understanding of the law and regulations as published by the Government authorities and we may or may not agree or subscribe to such views.
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