What is service tax? Are you service provider and not sure about service tax applicability, service tax rules and exemption? Read the post to know all the important points related to service tax.
You will get insights of following points in this article:
- Definition and history of service tax
- Changes in the service tax rules
- Service tax registration procedure
- Steps to check Applicability of service tax
- Declared services under service tax which are taxable
- Activities not covered under service tax
- Negative list under service tax
- Service tax due dates for return and payment
- Issue of invoice under service tax
- How to file service tax return
- Other important points
“Everyone in the Nation is very much aware (even a common man) that service tax rate has been increased from 12.36% to 14% (with effective from 1-June-2014) and this has created a financial burden on the lower and middle class person”
What is service tax : 11 Important points
Definition & History of service tax:
Service Tax (which came into existence in 1994 introduced by the then Finance Minister Dr. Manmohan Singh)is a Tax imposed by the Central Government of India (Under Ministry of Finance as Indirect Tax) on service providers on various service transactions(Just like Excise Duty is being paid by the Manufacturer of goods), however it is really borne by the customers.
In other words, the Service Provider will can collect this Service Tax amount from the consumer of service (also referred as the Recipient/Receiver of Service) and deposits the same with the Central Government.
Radical Changes in the Statue:
Although Service tax was paid on the selective services by up-to fiscal year 2012, but in 2012 the amendments were brought in the statue by Mr. Pranab Mukherjee, in the budget speech dated 16th March 2012, that “this tax would be applicable on all services except the negative list of services”. Therefore, from 1st-July-2012 all services provided by the service providers (except the 17 services specifically mentioned in the negative list and some composite services)had become taxable.
Service tax registration
Every provider of the service in India (except J&K where the law is not applicable) has to register itself if the value of services provided during a year is more than Rs. 9 Lakhs and Input Service Distributor, but the tax would be payable only when the value of services provided is more than Rs. 10 Lakhs.
Chargeability of Service Tax
In the earlier times (up-to 2012), the service tax was charged on cash basis but after the amendments the changeability will be as follows:
- On Cash Basis: Applicable to Individual Service Providers, which means that service provider will deposit the service tax only when the amount as shown in the Invoice has been collected.
- On Accrual Basis: Applicable to every company, partnership firm, LLP, professionals etc., which means that liability to pay services as soon as the services are provided irrespective of the collection of the funds on the same.
Declared Services under service tax– Understanding and Brief Description
Since the service tax is levied on almost every service (except the negative list of service) but there are certain activities which are difficult to determine that whether such activities would be classified as a service or not. Therefore, government while introducing the negative list of services has specifically mentioned that “Service Tax would be levied on all Declared Services”as well. These are those activities which were earlier difficult to determine as services but would now be deemed as Services and therefore service tax would be levied on these services.
Brief description about these services is given below in the table:
| S. No. | Declared Service | Description of Service Taxable |
| 1. | Information Technology Software Service | Development, Design, Programming, Customisation, Adaptation, Up gradation, Enhancement, Implementation of Information Technology Software.Relevant Definition:Information Technology Software means any representation of instructions, data, sound or image, including source code and object code, recorded in a machine readable form, and capable of being manipulated of providing interactivity to a user, by means of computer or automatic data machine or any other device or equipment. |
| 2. | Refraining from an Act / Tolerating an Act / Situation | Agreeing to the obligation to refrain from an act, or to tolerate an act or a situation or to do an act. |
| 3. | Transfer of Right to Use of Goods | Transfer of goods by way of hiring, leasing, licensing or in such manner without transfer of right to use such goods. |
| 4. | Activity in Relation to Delivery of Goods in Installments | Activity in relation to delivery of goods on hire, purchase or any system of payment by installments. |
| 5. | Works Contract Service | Service Portion in the execution of a works contract.Relevant Definition:Works Contract means a contract wherein transfer of property in goods involved in the execution of such contract is leviable to tax as sale of goods and such contract is for the purpose of carrying out construction, completion, fitting out, repair, maintenance, renovation, alteration of any movable or immovable property or for carrying out any other similar activity or a part thereof in relation to such property. |
| 6. | Service Portion in supply of goods | Service Portion in an activity wherein goods, being food or any other article of human consumption or any drink (whether or not intoxication) is supplied in any manner as a part of the activity. |
| 7. | Renting of Immovable Property | Allowing, permitting or granting access, entry, occupation, use or any such facility, wholly or partly, in an immovable property, with or without the transfer of possession or control of the said immovable property and includes letting, leasing, licensing, or other similar arrangements in respect of immovable property for use in the course of furtherance of business or commerce. |
| 8. | Construction of Complex | Construction of complex, building, civil structures, or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire sale consideration is received after issuance of completion certificate by the competent authority. |
| 9. | Temporary Transfer of Intellectual Property Rights | Relevant Definition:Intellectual Property Rights means any right to intangible property, namely, trademarks, designs, patents or any other similar intangible property under any law for the time being in force, but does not include copyright. |
Activities not covered under Service
There are few activities specifically mention in the definition of service and such activities are not considered as service and hence no service tax shall be payable on those services. The list along-with brief description of such service are given below:
| S. No. | Activities Not Covered under Service | Brief Description |
| 1. | Sale of Immovable Property | Any activity that constitutes only a transfer in title of immovable property by way of sale, gift or in any other manner. |
| 2. | Money or Actionable Claim | A transaction only in money or actionable claim |
| 3. | Sale of Goods | Any activity that constitutes only a transfer in title of goods by way of sale, gift or in any other manner. |
| 4. | Employer – Employee Relationship | Any service provided by an employee to an employer in the course of the employment. |
| 5. | Court / Tribunal Fees | Fees payable to a court or a tribunal set up under a law for the time being in force. |
Negative List
The government has specifically excluded the 17 service out of the ambit of service tax due to the reason that they are generally provided for or in the interest of general public and hence such services are kept out and no service tax payable on such services.
Practical issue:
This section deals with the practical aspects of basic service tax legislation for service providers such as fresh registration process, issue of invoice, filling of return, payment of service tax etc. The discussion is done in the form of check list so that one can take this as a basic guide to follow the basic provision of service tax.
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Steps to Check service tax applicability
These steps given in the table below are relevant for all the service providers and also for all the professionals working or assisting their clients for the service tax:
| Step No. | Particulars |
| 1 | Check whether Activity has been done by ONE PERSON TO ANOTHER |
| 2 | Check whether activity involves CONSIDERATION |
| 3 | Check whether activity involves outside the scope of exclusion clause:·Transfer of Title in goods or immovable property;·Transfer which constitutes deemed sale;
Transaction only in Money or actionable Claims; Services provided by employee to employer; Court/Tribunal Fees |
| 4 | If result of the above three test is affirmative; activity will be termed as ‘Service’ otherwise activity will be outside the ambit of Service Tax |
| 5 | Check whether Place of Provisions of Service falls in taxable territory |
| 6 | If result of above two tests is affirmative, service will be termed as ‘Taxable Service’ falls under ‘Mega Exemption Notification’ or any other exemption notification. |
| 7 | If result of supra test is affirmative, service will be termed as ‘Exempted Service’ otherwise service tax will apply. |
| 8 | In nutshell, Service Tax will apply if an activity (except those mentioned in exclusion clause) has been provided/performed in taxable territory by one person for another for consideration and is neither covered in negative list nor under Mega Exemption & other exemption notifications. |
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Service Tax registration (Practical Insights)
| 1. | Every person liable to pay service tax is required to get registered under service tax. |
| 2. | In addition following person are also required to get registration:· Service Provider whose taxable turnover is more than Rs. 9,00,000· Input Service Distributor (ISD) |
| 3. | The application for registration shall be submitted in form ST-1 within 30 Days |
| 4. | Assesse is required to get registration of each premises from which he is providing services |
| 5. | If a person is providing taxable service from more than one premise and has centralized billing system/accounting system, then he may opt for registering the premise from where such centralized billing/accounting is done mentioning there in all other addresses. Such registration is known as Centralized Registration. |
| 6. | If a person is providing more than one taxable service from a single premise than he is required to take a single registration mentioning there in all services being provided. |
| 7. | If there is any change in the ST-1 submitted, it must be intimated to AC/DC of central excise within 15 days of such change. |
| 8. | If any registered assesse ceases to provide the taxable service then he shall surrender his registration certificate immediately to superintendent of central excise. |
| 9. | Penalty for failure to take registration may extend to Rs. 10,000 |
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Due Dates for the Payment of Service Tax
| Month | Constitution of Person Liable to Pay Service Tax | |
| Individual / Proprietary Firm / Partnership Firm including LLP | Otherwise | |
| April | 5 / 6th July | 5 / 6th May |
| May | 5 / 6th June | |
| June | 5 / 6th July | |
| July | 5 / 6th October | 5 / 6th August |
| August | 5 / 6th September | |
| September | 5 / 6th October | |
| October | 5 / 6th January | 5 / 6th November |
| November | 5 / 6th December | |
| December | 5 / 6th January | |
| January | 31st March | 5 / 6th February |
| February | 5 / 6th March | |
| March | 31st March | |
| Note: In case on online payment of Service Tax 6th and otherwise 5th. | ||
Important Notes
| 1. | The service tax shall be deposited electronically only. No other option is available |
| 2. | Service Tax should be deposited under relevant accounting code specified for each service. |
| 3. | In case of delayed payment, interest will be applicable for delayed period @15 – 30 % per annum for the total period delayed. |
| 4. | Generally Service Tax can be paid vide:· Challan;· CENVAT Credit available;· Adjustment of excess service tax paid in earlier period;· Adjustment of service tax paid in advance; |
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Issue of service tax invoice
| 1. | The provider of service must issue an invoice within 30 days of completion of service or receipt of any payment towards such service. Banking company and Financial Institutions including NBFC’s are required to issue invoice within 45 days. |
| 2. | It shall contain the following details:· The name, address and the registration number of the Service Provide· The name and address of the Service Receiver· Description of Taxable Service Provided or agreed to be provided; and· The amount of service payable thereon. |
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how to file service tax return
| 1. | Every assesse shall submit the half yearly return by the 25th of the following month i.e. 25th October (for April to September) and 25th April (for October to March). |
| 2. | The assesse is required to file the service tax return even if the value of taxable services provided or the tax thereon is Nil. |
| 3. | Return can be revised within 90 days of filling the original return. |
| 4. | Steps for filling the return online:(a) Go to the www.aces.gov.in(b) Click on Service Tax Tab(c) Log in using user ID and password (if not available than register for the same first)(d) Go to RET tab from the main menu and select file ST-3 option(e) fill information related to the type of service, value of service, rate of service tax, mode of payment of service tax, challan numder and CENVAT credit flow
(f) Submit the return |
| 5. | The return can be filled through online or offline version. |
| 6. | Steps to file return through offline utility:(a) Download the off line return preparation utility available at under www.aces.gov.in (under download tab)(b) fill information related to the type of service, value of service, rate of service tax, mode of payment of service tax, challann umder and CENVAT credit flow(c) Generate XML file(d) Go to www.aces.gov.in(e) Click on Service Tax tab
(f) Log in using user ID and Password (g) Select RET tab from the main menu and upload the return (h) ACES may take one business day to validate the return |
| 7. | No need to file return in hard copy |
| 8. | Late fee for filling return may extend to Rs. 20,000/- |
Conclusion:
The above discussion in three parts is totally for gaining the basic understanding of the service tax such as what is service tax, who are eligible to pay service tax, payment of service tax, history of service tax, practical briefings, service tax registration process etc. and hence the readers may find it useful to gain the basic understanding of service tax.
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