The Former Finance Minister, Mr. Arun Jaitley, had brought in a proposal during the Union Budget 2016 to impose the Krishi Kalyan Cess on all taxable services. The recommended amount was at the rate of 0.5%, which put the effective service tax rate at 15%.
Note: Service Tax has been replaced by the Goods and Services Tax (GST) starting 1 July 2017.
During the 2015 budget, the Finance Minister had incremented the service tax rate from 12.36% to 14%, which had been applicable from June 1, 2015. Further, from November 15th, 2015, an additional Swachh Bharat Cess got added at the rate of 0.5%, which left the service tax at 14.5%. After the new proposal brought in during the 2016 Union Budget, the applicable service tax from June 1, 2016 will be 15%.
How will the Krishi Kalyan Cess be distributed?
A service tax is collected by the Central Government from service providers for offering certain types of products and services. When a customer makes a transaction which includes a service tax of 15%, where Krishi Kalyan Cess amount would be directed to the Consolidated Fund of India. The Central Government will be able to use these funds collected for particular purposes like financing agricultural activities and for the general welfare of the farmers. Funds collected under the Krishi Kalyan Cess will not be utilised for any other purposes.
The Krishi Kalyan Cess will be imposed on taxable services along with other service tax or cess as per the Chapter V of the Finance Act, 1994.
Calculation of Service Tax
From the 1st of June 2016, service tax is levied at 15% of the value of taxable services under Section 66 of the Service Tax Act. The 15% includes 0.5% Krishi Kalyan Cess and 0.5% Swach Bharat Cess.
The calculation of the amount that can be levied is done as a percentage of the charges paid or received for the receipt or provision of services. However, the tax need not compulsorily be levied on the whole amount charged to the customer. For instance, there is an exception of 60% on any air transportation, 30% on chit funds, and 70% on certain services provided by tour operators. Therefore, service tax will be charged on the amount that does not qualify for exemption.
Example for Calculation of Service Tax
In case the value of taxable services is Rs.20,000, the computation of the total service tax is as follows:
(14/100 x 20,000) + (0.5/100 x 20,000) + (0.5/100 x 20,000) = Rs.3,000.
In case 70% of the amount qualifies for exemption, the calculation of the total service tax is as follows:
20,000 x 30% = Rs.6,000
(14/100 x 6,000) + (0.5/100 x 6,000) + (0.5/100 x 6,000) = Rs.900
Documents Required for New Service Tax Registration
All the documents required for service tax registration must be self-attested copies. The address on the individual’s Driving License/Voter ID Card/Aadhar Card will not usually be the same as the address of the business, so copies of utility bills can be used as proof of business address as they are accepted by State Service Tax departments. The PAN Card is compulsory for the legal entity or proprietor.
Following are the documents you will need for service tax registration:
- PAN Card copy of the Legal Entity or the Proprietor registered.
- Identity proof and photograph of the individual filing the application (ID proof documents can be PAN Card, Voter ID Card, Driving License, Passport, Aadhar Card, or any other photo ID card availed from a Public Sector Undertaking, State Government, or Central Government.
- Details of the primary bank account.
- Authorisation by the Proprietor/Partners/Board of Directors for the individual filing the application.
- List of Directors/Articles/Memorandum of Association
- Rent or lease agreement, proof of ownership, No Objection letter from the Legal Owner, or allotment letter from the government for establishing possession of the premises to be registered.
- Business Transaction Numbers attained from other agencies or government departments, like Company Index Number, Central Sales Tax Number, State Sales Tax Number, Import Export Code, Customs Registration Number, which were issued before the Service Tax Registration application was filed.
Following are the documents you will need for service tax registration for Private Limited Companies:
- Articles/Memorandum of Association.
- Board Resolution with regard to authorisation of any of the company’s directors to deal/sign/comply with provision of the rules and regulations associated with the service tax.
- List of Directors along with their address and identity proof.
Following are the documents you will need for service tax registration for Partnership Firms:
- Copy of the Partnership Deed.
- The address and identity proofs of all partners.
- Business Transaction Numbers attained from other agencies or government departments like Central Sales Tax Number and State Sales Tax Number that were issued before the Service Tax Registration application was filed.
How to Apply for Service Tax Registration Online
It is compulsory for all service providers to apply for service tax registration in case the value of services that they render exceeds Rs.9 lakhs in a single financial year, based on the rules and regulations laid by the Government of India. However, in case the value of services offered by a service provider is lower than Rs.9 lakhs per annum, the service tax payer has the option to decide whether or not they want to complete the service tax registration.
The Service Tax Registration Application must be filed using the ST-1 Form. This form can be submitted online. Users who are registering for service tax for the first time will need to create an account so that the information in the ST-2 Form can be furnished. To create the account, visit http://www.aces.gov.in/STASE/ui/jsp/common/registerWithACES.do
After you have created an account on the aforementioned link, you will receive a password on your registered email id. The password will have to be changed and replaced by a custom password the first time you login to the account. This account will be a permanent account for every aspect regarding service tax.
To furnish the ST-1 Form, click on the ‘REG’ tab under which you will have to select the option ‘Fill ST-1’. Upon doing so, you will be redirected to the ST-1 Form where you will have to furnish the information required. The fields that should be filled in include Applicant’s Name, Address of Applicant, PAN Status, PAN (If Allotted), Applicant’s Name as in PAN, Constitution of Business, Name of Trustee / Proprietor / HUF, Category of Registration, and Nature of Registration. The office address of central premises should also be entered in the form.
In case you are offering over one service or are offering services from two or more premises, all such premises / services can be registered in the same form. To do, simply click on the option that says ‘Services Offered’ and then choose the services. All the details must be furnished to the range, division and commissionerate with whom you are registering.
After applying for Service Tax Registration online, you will have to get the Acknowledgement Slip printed out and sign it before furnishing the hard copy of the ST-1 Form to the commissionerate.
Once you have sent the required documents to the commissionerate, the superintendent will verify the ST-1 Form before granting the Service Tax Registration Certificate to you or sending an intimation for not accepting your Service Tax Registration. In case the superintendent does not exercise either of the two options mentioned above within two days, the Service Tax Registration will be considered as granted. You can choose to receive the Service Tax Registration Certificate (ST-2) either online or by post. After your Service Tax Registration Certificate is granted, you will receive a Service Tax Number that is 15 characters long. This number should be used in all invoices.
If you have chosen to receive the Service Tax Registration Certificate online, you can find the ST-2 Form on your homepage. To view the same, click on the ‘REG’ tab, then select ‘View’, and then pick ‘Latest ST-2’.
TDS On Service Tax
At the time of deducting service tax on a bill, if you availed the services of a service provider and owe them Rs.40,000, TDS will have to be deducted as it is over the Rs.30,000 threshold limit. However, if the service provider has charged service tax at 14% and Swach Bharat Cess at 0.5%, the bill amount will be Rs.40,000 + (14/100 x 40,000) + (0.5/100 x 40,000) = Rs.45,800.
TDS will be deducted on the original amount of Rs.40,000 and not Rs.45,800 as it is the actual income derived by the service provider. The service tax charged by the service provider will be paid to the government. Since it does not form part of the service provider’s income, the service tax added to the value of the service will not be taken into consideration, and only the actual value of the service will be deducted based on the applicable rates.
Service Tax on New Property
The Central government charges service tax on construction services provided by contractors to buyers. The cost of construction along with the cost of land is the total cost of the property, and service tax is only charged on the construction costs incurred. There is a 70% abatement “for services of construction of complex, building, civil structure, or a part thereof, subject to fulfilment of the existing conditions”, which means residential properties are subject to 4.5% service tax.
For other costs, like Floor Rise Charges, Preferred Location Charges, club houses and initial maintenance charges, service tax will be charged on the whole amount. Infrastructure development charges, parking charges and external development charges as well as lease rent to the limit paid to the state government will not be included in the service tax liability. Service tax will be applicable only to the purchase of property directly from contractors, and will not be levied in case resold properties are purchased as no provision of service is made in such cases.
Service Tax New Rate Applicable Date
Arun Jaitley, the Finance Minister of India, during the Budget 2015, had raised the Service Tax Rate from 12.36% to 14%, applicable from the 1st of June, 2015. The Swach Bharat Cess at 0.5% was added to the service tax on 15th November, 2015. From the 1st of June, 2016, the Krishi Kalyan Cess at 0.5% came into force, thereby making the overall service tax 15%.
Impact of the Service Tax Hike:
With the implementation of the service tax hike, consumers would see a noticeable increase in their bill amounts when they purchase electronic equipment, AC railway tickets, cars, houses and movie tickets. Banking transactions, phone bills, internet bills, credit card bills, dining bills and health care services will become costlier with the imposition of the new tax.
Manufacturers will be able to find some reprieve from the Krishi Kalyan Cess as it will be slightly lower for them. They will have rebates for cess paid on goods that are imported.
Goods and services purchased for any value more than Rs. 2 lakhs would attract a 1% tax at source. This does not include jewellery purchases. Cars costing above Rs. 10 lakhs would also carry a luxury tax of 1%.
What’s in store for Indian consumers?
The Parliament would be passing the Goods & Service Tax (GST) during the Monsoon session later this year. The recent service tax hike might be effective for a short time period as it is expected that the Goods & Service Tax (GST) will increase to 17% - 18%. This could be levied uniformly across service providers in the country, thereby replacing all other tax forms.