Service Tax In India

What is Service Tax?

Service Tax was introduced in India by the Finance Act 1994. Service tax is the tax charged and collected by the government of India from specified service providers rendering certain specified services mentioned under section 65 of the Act. The service provider collects it as a separate charge from service receiver. The tax thus collected is in turn paid into the credit of the Government. The most common service tax that service receiver are familiar with is in restaurant and hotel bills.

Important Rules of Service Tax

  • Registration: Every service provider who is required to pay service tax shall be required to get registration. The registration is applied through an application Form ST – 1. Such application should be applied for within 30 days from the date on which service tax is charged.
  • Issuance of Invoice: Every service provider offering taxable services is required to issue a proper invoice. Such Invoice is to be issued within 14 days of rendering the service or received and should be signed by the assessee or a person authorized by him. The invoice shall contain information such as:
  • Serial Number
  • Name, address and registration number of the service provider
  • Name and address of the service recipient
  • Amount charged for the service provided
  • Amount of service tax to be paid.
  • Payment of Service Tax: Service tax collected should be credited to central government by the 6th of every month, if paid electronically and 5th of every month, if by any means other than electronic. Service tax can be paid on quarterly basis by individuals and partnership firms. Companies, society and trusts need to pay service tax on monthly basis. Individual service providers have pay tax on cash basis and Companies have to pay it on accrual basis.

Returns to be Filed

  • Due Date: Service tax assessee is required to submit half yearly returns and the due date is 25th of the month following half year completion.
  • Forms for Return: The return is submitted in Form ST-3 or ST-3A along with a copy of Form TR-6 filled in triplicate. It should be accompanied by a GAR-7 Challan which is available in specified branches of nationalised banks. The return can be filled and submitted in the same bank branch. There is also provision of filing e-return that we will discuss in the later paragraphs.
  • Return for revision: In case of mistake or any omission, revised return can be furnished in Form ST-3 within 90 days from the date of original submission of Return.

Penalties in Case of Default

In case of failure to furnish return by due date, an amount of Rs. 500 shall be charged as penalty in case the delay is under 15 days. Delay beyond 15 days attracts a penalty of Rs. 1000 and any further delay after 30 days, the assessee shall be liable to pay Rs. 100 for every month until the return is furnished.

Rate of Service Tax

Rate of service tax are decided in the Union budget and stands at 14%. But it includes Education Cess and Secondary and Higher Education Cess in it. Apart from these cess, “Swachh Bharat Cess” at 2% on all or select taxable services in India is also being charged.

Steps to File Returns and Make Payment Online

  • Step 1: Register with ACES (Automation Central Excise and Service Tax) on Central Board of Excise and Custom website.
  • Step 2: The site will send a user ID and password to log on.
  • Step 3: Click on Form ST-1 and fill it up online by putting information requested.
  • Step 4: The e-payment is to be made through internet banking by choosing your bank.

Similarly one can file return by using forms mentioned earlier by choosing the option of filing returns.

Exemptions Under Service Tax Act

Service Tax Act exempts the following businesses from its scope:

  • A small scale or individual service provider provided the total turnover of taxable services does not go beyond Rs. 10 lakhs in a single a financial year.
  • The recipients, if there is written proof indicating the value of the goods and materials. Further there should be proof that no credit of duty is paid on such goods and materials, and if the services have been rendered under the CENVAT Credit rules.
  • Service tax is not applicable to the services provided to officers of diplomatic missions and their dependants including any service rendered to the diplomatic missions themselves.
  • Services provided to international organizations and the United Nations are not taxable.
  • Port services, goods transport services and containerised transport services received by an exporter and used for export of goods are not taxable. If the service tax is paid by an exporter on the above mentioned cases, it is refunded.
  • Service tax is not applicable to the services provided to a developer of Special Economic Zone or a unit of Special Economic Zone.

This was the complete guide on Service Tax in India. For more detailed information you can refer to the finance Act and consult a tax consultant by visiting Letzbank. We have tie up with cleartax where one can hire Chartered Accountant and tax consultants for various tax related needs.