What is Service Tax and who pays this tax?Service tax is, as the name suggests, a tax on Services. It is a tax levied on the transaction of certain services specified by the Central Government under the Finance Act, 1994.
It is an indirect tax (akin to Excise Duty or Sales Tax) which means that normally, the service provider pays the tax and recovers the amount from the recipient of taxable service.
Who is liable to pay service tax?Normally, the "person" who provides the taxable service on receipt of service charges is responsible for paying the Service Tax to the Government (Sec.68 (1) of the Act). However, in the following situations, the receiver of the Services is responsible for the payment of Service tax :
(i) Where taxable services are provided by foreign service providers with no establishment in India , the recipient of such services in India is liable to pay Service Tax.
(ii) For the services in relation to Insurance Auxiliary Service by an Insurance Agent, the Service Tax is to be paid by the Insurance Company
(iii) For the taxable services provided by a Goods Transport Agency for transport of goods by road, the person who pays or is liable to pay freight is liable to pay Service Tax , if the consignor or consignee falls under any of the seven categories viz. (a) a factory (b) a company (c) a corporation (d) a society (e) a co-operative society (f) a registered dealer of excisable goods (g) a body corporate or a partnership firm.
(iv) For the taxable services provided by Mutual Fund Distributors in relation to distribution of Mutual Fund the Service Tax is to be paid by the Mutual Fund or the Asset Management Company receiving such service.
Refer: Sec. 68(2) of the Act read with Rule 2(1)(d) of the Service Tax Rules, 1994.]
Under what authority service tax is levied?Vide Entry 97 of Schedule VII of the Constitution of India, the Central Government levies
service tax through Chapter V of the Finance Act, 1994. The taxable services are defined in Section 65 of the Finance Act, 1994. Section 66 is the charging section of the said Act.
What are the taxable serviceTaxable Services have been specified under Section 65(105) of the Finance Act, 1994. All the taxable services as on 01.05.2011 are listed in Appendix-1. The list also shows the relevant Accounting Heads required to be mentioned on the tax payment documents (GAR-7), while depositing the Service Tax and other related dues in the banks.
How to decide whether Service Tax is payable by a person?
A. If you are engaged in providing a service to any person, please check:-(i) Whether the service rendered by you is falling under the scope of any of the taxable services listed in the Appendix-1.; and
(ii) Whether there is a general or specific exemption available for the category of service provided under any notification issued under section 93 of the Finance Act, 1994.
(iii) Whether you are entitled to the value based exemption available for small service providers under notification No.6/2005-ST dated 1.3.05 as amended from time to time. Details are explained in para 8.1 of this Booklet.
(iv) Whether the service charges were received for the services provided or to be provided.
In case the service provided by a person falls within the scope of the taxable services and if such service is not fully exempted, the service tax is payable on the value of the taxable service received, subject to the eligible abatements, if any (as discussed at para 1.7 of this Booklet).
B. If you are availing the services of the service provider, please check:-
a. Whether the service received by you is falling under the scope of any of the services where the recipient of the service is liable to pay Service Tax in terms of Section 68(2) of the Act read with Rule 2(d) of the Service Tax Rules, 1994 (Please also see Para 1.2 of this Booklet)
b. In case the service received by recipients of such service is falling under the scope of any of the taxable services defined under section 65 of the Finance Act, 1994, the recipients of the service shall pay Service Tax after considering specific exemptions/abatement admissible, if any.
c. Please note that the value based exemption for small scale service providers under Notification No.6/2005 ST dated 01.03.2005 as amended is not admissible to such recipients of taxable services. (For further details, please see para 7.1 of this Booklet).
What is the rate of Service Tax?At present, the effective rate of Service Tax is 10.3% on the value of the taxable service. The above effective rate comprises of Service Tax @10% payable on the “gross value of taxable service”, Education Cess @ 2% on the service tax amount, and Secondary and Higher Education Cess @ 1% on the service tax amount.
Service Tax (Compounding of Offences) Rules, 2012
Service Tax (Settlement of Cases) Rules, 2012
Point of Taxation Rules, 2011
Service Tax (Determination of Value) Rules, 2006 Dispute Resolution Scheme Rules, 2008
Service Tax Dispute Resolution Scheme, 2008
Export of Service Rules, 2005
Service Tax (Provisional Attachment of Property) Rules, 2008
The Service Tax (Publication of Names) Rules, 2008
Service Tax (Advance Rulings) Rules 2003
Service Tax Return Preparer Scheme, 2009
Service Tax Rules, 1994
Website of Directorate of Service Tax, Mumbai