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Service tax is a type of indirect Tax that you are liable to pay to the government once you consume the taxable services offered by different service providers such as restaurants, cab services, hotels, travel agents, cable providers etc. The consumer pays the service tax to the service provider while paying the bill (for example, your restaurant bill has a component of service tax). The government in turn collects the tax from the service providers.
Service tax was introduced in the year 1994. As per section 65 of the Finance Act 1994, service tax is imposed on certain services such as AC restaurants, hotels and guest houses etc. As per the new regulation, service tax is also applicable on both individual service providers and companies in India. Service tax can be paid in two ways- cash payment (for service providers) and on accrual basis (for companies). Service tax, however, is applicable only if the value of services exceeds Rs. 10 lakhs in a single financial year.
Service tax rates are subject to change from time to time. The government revises the rates during the financial budget session. Normally the finance ministry announces changes in the service tax rates during the budget session of the parliament. In the year 2015, the finance minister declared an increase in the service tax rate from 12.36% to 14% . In the year 2016, this rate was again revised and increased to 15% , which includes 0.5% ‘Swachh Bharat’ cess and 0.5% ‘Krishi Kalyan’ cess.
The government has defined service tax in detail under section 65B (44) of the Finance Act, 1984. The Act clearly defines the list of services, which should come under the purview of service tax. It also gives the list of services, which are non-taxable and calls it “the Negative List”(listed under section 66D of the Finance Act). In addition to the negative list, there are certain special services that are exempt from service tax, vide Notification Number 25/2012- ST (published on 20th June 2012). Before imposing service tax, it is also taken into consideration whether the service has been provided within a taxable territory or not. The Place of Provision of Services Rules, 2012 is used to determine the nature of the territory whether service is provided.
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In most cases, the service tax is collected directly from the service provider. However, in certain cases, the government may also collect the service tax from the recipient of the service. This is known as “Reverse Charge Mechanism”.
In the recent years, as a part of the Government drive towards Digital India, the entire process of registering oneself or one’s business for service tax has been made online. One can apply for registration by visiting the website www[dot]aces[dot]gov.in. One needs to register within 30 days of providing a taxable service. Once a complete application is submitted online, the government reviews and grants the registration within 2 working days. The applicant can get this registration done without prior submission of verified documents. The verification can be done even after registration is granted. After the digitization of this entire process, the soft copy of the registration certificate is all that one needs as an acceptable proof of registration.
Currently, under the new rules, online payment of service tax has been made mandatory for all eligible tax payers. However, there may be exceptions made following specific requests to allow manual payment. The request needs to be made through AC/DC. Online service tax payment can be done from the website www[dot]cbec-easiest[dot]gov.in.
Proprietary or partnership farms or individuals or other small tax payers need to make the service tax payment on a quarterly basis, by the sixth day of the month, immediately after the end of the quarter. In all other cases, the service tax needs to be paid by the sixth day of the month immediately after the month in which the taxable services are provided. Essentially this means that big businesses, corporates etc. would need to pay service taxes almost every month.
If the payee chooses to pay service tax using anything other than online mode, the due date becomes the fifth day of the month immediately following the quarter or the month (as per the applicable case).
The tax payers are required to maintain their own records. They may issue digitally signed invoices and also maintain service tax collection records, electronically. The taxpayers should preserve these records for a minimum of five years.
It is expected that the taxpayer will determine their taxable income, calculate the amount of tax to be paid by using income tax calculator and pay the required amount electronically. Once the taxpayer has started paying the service tax regularly, he or she needs to file for return online on a half yearly basis by logging on to www[dot]aces[dot]gov.in. This needs to be done on or before 25th of the month following the half year.
Service tax compliance is voluntary in nature, that is, the taxpayer is encouraged to calculate and pay his own taxes. However, penalties and punitive actions have also been devised to increase the effectiveness of service tax collection.
The government uses the money collected from service tax in various expenditures such as infrastructure projects, social welfare projects, defence expenditure etc. In 1994-1995, the total service tax collected was Rs 4hundred and 7 crores only. The figure stands at Rs. 211456/- in the financial year 2015-16. This shows a steady increase in both the collection of service tax and a growth of the service industry in India, over the last two decades.
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