Service Tax Exemption

Small service providers can avail exemptions on service tax provided they fulfil certain criteria. There is also a detailed list of services or service providers who can avail of these exemptions.

Note: Service Tax has been replaced by the Goods and Services Tax (GST) starting 1 July 2017.

As per the Budget 2016, the rate of service tax levied on all taxable services stands at 15%. However, certain exemptions exist whereby service tax is not required to be paid. Entities providing any kind of service can avail of these exemptions, regardless of the type of service they offer.

General Service Tax Exemptions

In general, service providers can avail of the following exemptions, if the services provided by them meet any of the following criteria:

  • Small scale service providers can avail of service tax exemption up to a maximum of Rs 10 lakhs.
  • Any service that is offered to any international organisation or to the United Nations is exempt from service tax
  • Any service that is offered to units of Special Economic Zones or to Special Economic Zone developers is exempt from service tax
  • Any service that is provided or offered free of cost is exempt from service tax
  • Taxable services that are provided to diplomats and their family members for official purposes are exempt from service tax
  • Taxable services provided to diplomatic officers as well as their family members for personal purposes are also exempt from service tax
  • Any service that was provided before it was considered to be a taxable service, despite the fact that payments took place at a later date, is exempt from service tax

Service Tax Exemptions for Small Service Providers

Small service providers whose total turnover value of all taxable services provided by them is not more than Rs 10 lakhs over the course of a financial year are eligible to avail of service tax exemptions. However, even though this exemptions can be availed if the total turnover is in excess of Rs 10 lakhs, small service providers are mandatorily required to place an application for service tax registration within a time frame of thirty days after his or her turnover goes beyond Rs 9 lakhs.

Some of the other conditions that small service providers are required to fulfil in order to avail of service tax exemptions are as follows:

  • If the total value of the taxable services provided by the small service provider is not in excess of Rs 10 lakhs for the present financial year as well as the financial year prior to the current one
  • Small service providers must not utilise the CENVAT credit that they have received on input services or capital goods over the period of time during which they are looking to avail of service tax exemptions
  • Small service providers cannot avail of service tax exemptions should a situation arise wherein a reverse charge may apply
  • Exemption from service tax cannot be availed If any service that is deemed taxable is provided by a small service provider operating under a brand or trade name
  • If a small service provider offers multiple services through multiple outlets, then service tax exemption can only be availed of if the total turnover of all services from all outlets is not more than Rs 10 lakhs

Negative List of Service Tax:

Under Section 66D of the Finance Act 1994, a negative list of services have been outlined, which are deemed to be exempt from service tax. Any service provided that does not come under the purview of this list is liable to be levied with service tax.

Service Tax Exemptions apply to the following services outlined under the negative list

  • Any service that are provided by a government or localised authority, with the exception of the following:
    • Postal service
    • Aircraft services in the vicinity of airports
    • Vessel services in the vicinity of ports
    • Transportation services with regards to goods or passengers
    • Any other services provided to organisations carrying on business, but which do not fall under the services mentioned above
  • Any service rendered by the Reserve Bank of India (RBI)
  • Any service rendered by a diplomatic mission of foreign origin with operations in India, and located within the country
  • Any service in relation to agricultural operations such as:
    • Production
    • Harvesting
    • Testing
    • Cultivation
    • Agricultural protection
    • Supply of manpower to farms
    • Any agricultural process taking place on a farm
    • Lease of equipment or land
    • Storage of produce
    • Agent services
    • Agricultural processes such as trimming, curing, cutting, packaging, fumigating, tending, cooling, grading, drying, sorting etc, which only seek to enhance the marketability of the produce without changing or altering any of its characteristics
  • Any service that involves the trade of products or goods
  • Any activity that results in the creation or manufacture of goods
  • Any service that involves the sale of space or time periods for the purpose of advertising, either through TV or radio
  • Any service with regards to toll fees for bridges or roads
  • Services that involve windfalls such as lotteries or betting
  • Services in relation to the admission fees levied on access to events with regards to entertainment
  • Services related to the distribution and transmission of power and electricity by any utility dealing with the same
  • Educational services such as:
    • Education with regards to pre-school
    • Education with regards to higher secondary school or similar
    • Education in relation to the attainment of any qualification that is legally recognised
    • Education as a component of an authorised vocational course
  • Banking services such as
    • Services relating to the extension of deposits or advances wherein the value is denoted in the form of interest or rebate
    • The sale or acquisition of foreign currency that takes place between banks, recognised forex dealers, and between banks and recognised forex dealers
  • Transportation services provided to passengers by certain modes of transport such as:
    • Transport by rail in any class with the exception of Class A or Class B
    • Transport by stage coach
    • Transport by metro rail or tram
    • Transport via inland canals or waterways
    • Public forms of transport such as taxis, autos or any other vessel not used for the purpose of tourism
  • Transportation services with relation to goods such as:
    • Transport by roadways with the exception of agencies dealing with the courier or transport of goods
    • Transport by airplane or ship from any destination outside the borders of India
    • Transport by inland canals or waterways
  • Any funeral services such as:
    • Services related to the burial of an individual
    • Crematory services
    • Mortuary services
    • Services involving the transportation and transfer of the deceased individual
  • Services relating to any vocational courses that have been offered by any instituted that is affiliated and recognised by the State Council of Vocational Training
  • Any service involving agricultural testing with regards to produceĀ 

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