An Overview of Service Tax in India

service tax in India
The chapter V of the Finance Act, 1994 brought service tax (ST) in force in the country. It is applicable in all states except Jammu and Kashmir. The Indian government through the Department of Revenue levies ST and collects it. ST is an indirect tax with administrative control vested with the Central Board of Excise & Customs (CBEC).

Statutory provisions

  • The section 65B (44) of the Finance Act comprehensively defines services. All services including declared services, except those that are exempt or specified in the negative list, are liable to ST. The applicable rate is 14% and further includes 0.5% Swacch Bharat Cess (SBC) and 0.5% Krishi Kalyan Cess (KKC).
  • The place of provision is used to determine whether the service is provided in taxable territory. The Place of Provision of Service Rules, 2012 specifies the procedure for determining the place where service is delivered or agreed to be delivered.
  • Generally, the service provider has the responsibility to pay the tax. However, in some instances, the recipient may be liable for the payment of ST. This is referred to as “reverse charge mechanism”.
  • To prevent the cascading effect of the tax, the authorities allow the off set of input taxes paid on capital goods and inputs used to deliver the services.

Registration

  • Registration for service tax in India may be done online on aces.gov.in within one month from the start of offering taxable services or on the date of the levy of service tax on any new service. In addition, when the value of the taxable services exceeds INR 9 lakh, the service provider must register within 30 days.
  • Registration is completed within two days without the submission of any documents or verification. The applicants do not require signed registration certificate. The certificate may be downloaded from the ACES website. Document verification is done after the registration is granted.
  • Any taxpayer with multiple premises or who is using centralized accounting may opt to obtain centralized registration for the various premises at the central location.

Payment of tax

  • All taxpayers must pay the service tax online; however, manual payments may be allowed for specific requests.
  • ST payment is on an accrual basis for most taxpayers. However, for service providers whose preceding year income does not exceed INR 50 lakh, the tax is payable on a receipt basis.
  • Proprietors, individuals, partnerships, and specified small taxpayers must pay the quarterly ST by the 6th day of the following month at the end of the quarter.
  • Other taxpayers must pay the tax on the 6th of the month following the month in which services are delivered.
  • For non-electronic tax payments, the due date is 5th of the month following the month or quarter, as applicable.

Record maintenance

  • Records maintained by the taxpayers are accepted by the department and no separate records are needed.
  • Issuance of electronically signed invoices and other electronic records are acceptable.
  • All records must be maintained for at least five years.

Returns

  • All taxpayers must complete self-assessment and pay their taxes as applicable.
  • ST-3 returns must be filed on the ACES website on a half-yearly basis or before the 25th date of the month following the half year

Service tax is no longer applicable since the implementation of the Goods and Services Tax (GST) from July 1, 2017. The GST rate slabs are classified into four categories; 5%, 12%, 18%, and 28%. Using a GST calculator to determine the tax liability is recommended to ensure that compliances are followed and the whole process becomes easy.

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