What is Service Tax?
Service tax refers to tax collected by the government of India from certain service providers for providing certain services. The person who pays service tax can be either a service provider or a service receiver or any other person who is responsible for providing certain services. Indirect Tax is a kind of indirect tax because the service providers pay the tax and recovers it from the service receivers who receive or purchase the taxable services. It is a kind of tax that you pay to the government for enjoying different services received from various service providers.
Service Tax in India:
Service tax in India came into effect in 1994 following the Finance Act, 1994. It is imposed on certain services which are taxable under the section 65 of Finance Act, 1994. The budget 2012 increased the range of services included under service tax. It incorporated services such as service provided by AC restaurants, short and long term lodging offered by hotels and private guest houses etc. under taxable services. As per this new regulation, service tax is charged from individual providers as well as companies in India. Individual service providers can pay this tax via cash while companies can pay it on accrual basis. However, they need to pay this tax only if the value of services provided by them exceeds Rs. 10lakh in a single financial years. However, this new additions to service tax rules are not applicable to the state of Jammu & Kashmir. From the year 2012 onwards, all services, except the ones specified in the “negative list” of services, become liable for service tax. The negative list refers to the services listed in section 66D of the Finance Act, 1994.
Service Tax Rules:
As per the Finance Act, 1994, the government of India creates a set of rules in order to assess and collect service tax in India. Listed below are the rules applicable to service tax in India:
Rule 1: Short Title and Commencement:
- The rules created to assess service tax may called as Service Tax Rules, 1994.
- They came into effect from 1st July, 1994.
Rule 2: Definitions:
- This category of rules includes the definitions of various terms such as “Act”, “assessment” “personal liable for paying service tax” etc. Act refers to the Finance Act, 2014, “assessment” refers to the self-assessment of service tax by the assessee, provisional assessment and reassessment, and "personal liable for paying service tax" refers to the recipient of service.
- It also includes definition of "quarter" "security services" "renting of immovable property" etc. Quarter refers to the period between 1st January to 31st March or 1st April to 30th June; or 1st July to 30th September; or 1st October to 31st December of a single financial year. “Renting of immovable property” refers to services provided by renting of immovable property and “security services” refers to services relating to the security and property.
Rule: 3 Appointment of Officers:
- As per this rule, the Central Board of Excise and Customs can appoint central excise officers.
Rule 4: Registration:
- Every service provider who is liable to pay service tax shall apply for registration by using the application Form ST - 1 within 30 days from the date on which service tax is charged. This is very essential.
Rule 4 (A): Information about Taxable Services To Be Provided on Bill, Invoice Or Challan
- Every service provider offering taxable services will issue an invoice or a bill or a challan signed by him or by another person authorized by him which will contain the basic information such as name, address and registration number of the service provider; name and address of the service recipient; description and cost of taxable service provided and the amount of service tax to be paid.
Rule 4 (B): Consignment Note:
- Any service provider that provides services related to transportation of goods should issue a consignment note.
Rule 5: Records:
- Any records containing computerized data maintained and produced by an assessee according to different existing laws shall be accepted by Central Board of Excise and Custom.
Rule 5 (A): Access to Registered Premises:
- As per this rule, any officer authorized by the commissioner shall have access to any premises in order to complete scrutiny and verification required to protect revenues.
Rule (6): Payment of Service Tax:
- As per this rule, the service tax will be paid to the credit of the central government by the 6th of every month, if paid electronically and 5th of every month, if paid via other means.
Rule 6 (A) Export of Services:
- It includes the situations under which any services shall considered as export of services. If the provider of service is located in the taxable territory and the recipient is located outside India, the service shall be considered as export of service.
Rule 7: Returns:
- Every service provider shall submit a half yearly return in Form ST-3 or ST-3A together with a copy of the Form TR-6 filled in triplicate by 25th of the month following the half year.
Rule 7 (A) Returns for taxable services provided by transport operators:
- Services/goods provided by transport operators shall also furnish a return within a period of six months from the 13th May of 2003, failing which will lead to penalty.
Rule 7 (B) Revision of Return:
- As per this rule, an assessee can submit a revised return in Form ST-3 to modify or correct any mistakes within 90 days from the date of submission of return.
Rule 7 (C): Amount to be paid for delay in furnishing returns:
- An amount of Rs.500 needs to be paid to the credit of the central government, if you fail to furnish your return within 15 days from the prescribed date of submission. If it gets delayed by more than 15 days, you need to pay Rs. 1000. If it extends beyond 30 days, you need to pay Rs. 1000 plus Rs.100 per month till the date you finally furnish your returns.
Rule 8: Appeal to Commissioner of Central Excise:
- You can appeal to Commissioner of Central Excise in Form ST - 4 under section 85 of the Finance Act, 1994.
Rule 9: Form of Appeals to Appellate Tribunal:
- You can appeal to the Appellate Tribunal under section 86 of the Finance Act, 1994 by using Form ST-5.
Rule 10: Facilities and Procedure for Large Taxpayers:
- This section of rules include the provisions enjoyed by the large taxpayers. A large taxpayer shall submit returns for each of their registered premises. They may also be required to produce all financial records for verification and security when required.
Service Tax Rates In India:
There is an increase in the rate of service tax in India following the recent announcement made by the finance minister Arun Jaitley in budget 2015. The budget decides to increase the rate of service tax to 14% from its previous rate of 12, 36%. However, this revised rate of service tax will include Education Cess’ and ‘Secondary and Higher Education Cess’ in it. It is expected that this rise in service tax rate will increase the cost of restaurant bills and mobile bills for common people. The government of India took this move to levy tax smoothly on the services provided by both states and the centre. Beside, another provision is included in the Finance Bill, 2014 to levy a “Swachh Bharat Cess” at 2% on all or select taxable services in India.
How to Pay Service Tax In India?
You can pay service tax by using a G.A.R -7. This is a challan available in specified branches of particular banks. You need to fill the challan by putting all required information and submit it at your particular bank. However, you can also pay your service tax online by using the e-payment facility offered by the central Board of Excise and Custom. For E-payment, it is mandatory to have an internet banking account with any of the authorized banks.
Previously service tax was charged on cash basis from all service providers. But, now only individual providers have pay tax on cash basis. Companies have to pay it on accrual basis. They need to deposit tax as soon as they offer services to recipients. Service tax can be paid on quarterly basis by individuals and partnership firms. But, companies, society and trusts need to pay service tax on monthly basis.
How to File Service Tax Returns?
Usually, a service tax assessee needs to file two type of returns - ST-3 Return and ST-3A Return. ST-3 Return is applicable for registered assessee. ST-3A Return is applicable for those who make provisional assessment under rule 6(4) of the Service Tax Rules, 1994. You need to file ST-3 Return twice in a financial year on half yearly basis. You can file your service tax returns by furnishing the details of each month for which the return is filed. You need to furnish these details separately with Form ST-3. While filing your service tax returns, you can take the help of instructions stated in the application form. Your application form needs to be accompanied by a GAR-7 challan.
If you want to file your service tax returns online, first you need to register with ACES (Automation Central Excise and Service Tax) by visiting website of Central Board of Excise and Custom. Once, you register, the site will send you an user ID and password by using which you can log in to the site of central Board of Excise and Custom and get access to FORM ST-1. Then, fill up the online form by putting all required information and make an e-payment by using your chosen bank. You can also revise your service tax returns in order to correct an error or omit something. If you fail to file your returns within 15 days, from the prescribed due date of returns, you need to pay a penalty fee of Rs. 500. But, the penalty fee increases, if service tax returns get delayed beyond that.
Service Tax Penalties:
As per the provisions made under Sections 76, 77 and 78 of Finance Act, 1994, the central government may charge penalty, if you fail to meet the following conditions:
- If you fail to furnish the ST-3 Return within the due dates which are 25th October and 25th April of every year. In that case, you will be liable to pay penalty fee which may extend up to Rs. 2000 based on the period of delay.
- If a person fails to furnish information or appear before the Central Excise Officer when called for, he/she shall have to pay penalty up to Rs. 5000 or Rs. 200 per day after the due date, whichever is higher.
- If you are a service provider and fail to register your service, it will draw penalty as per the regulations mentioned in section 77 of the Finance Act, 1994 and the penalty fee may go up to Rs. 5,000. Because, registration serves as an identity of an assessee and it is mandatory to register your services.
- If an assessee fails to keep or maintain records of account and other documents required by service tax law, he/she shall be liable to pay penalty fee which may go up to Rs. 5,000.
- If a person fails to pay tax electronically, he/she shall to pay penalty which may extend up to Rs. 5,000.
- Penalty fee is also charged on non-payment or delayed payment of service tax.
- Penalty shall be charged up to Rs. 5000, if a person issues an incorrect invoice or fails to support his invoice with valid details.
- Penalty shall be charge if a person suppresses the value of taxable services or provides willful miss-statement about the service provided.
Not only there are provisions for imposing penalty if you fail to meet the above mentioned criteria, there are also provisions for not imposing penalty in the service tax rules. As per section 80 of the Finance Act, 1994, if a person can provide sufficient cause to support his failure to pay service tax, he/she can be exempted from paying penalty fees. However, insufficient funds or lack time are not considered as adequate causes to waive penalty.
What are the Exemptions Under Service Tax In India?
Normally, service tax is paid on all services except for those included in the negative list of services. All service providers including central and state government service providers as well as private sector service providers are liable to pay service tax. However, there are a few exceptional scenarios wherein service providers can avoid paying service tax. Listed below the major exemptions:
- A small scale or individual service provider can enjoy service tax exemption, if its total turnover of taxable services does not go beyond Rs. 10 lakhs in a single a financial year.
- The recipients are exempted from paying service tax for the goods and services received from the service provider, if there is written proof indicating the value of the goods and materials and 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 diplomatic missions and to the officers a diplomatic mission and their family members.
- Services such as port services, goods transport services and containerised transport services received by an exporter and used for export of goods are not taxable. In such cases, service tax paid by an exporter on the above mentioned situations is refunded to the exporter.
- Services provided to international organizations and the United Nations are not taxable.
- Service tax is not applicable to the services provided to a developer of Special Economic Zone or a unit of Special Economic Zone.
Billing of Service Tax:
Issue of Bill or Invoice by the service tax assessee has been made mandatory according to Rule 4A of STR, 1994. The bill or invoice must be issued within a period of 14 days from the taxable service completion date or payment receipt for the service, whichever takes place earlier.
The bill or invoice must have the following things on it:
- Serial number
- Address and name of the service receiver
- Registration number, address and name of the service provider must be there on the bill
- Taxable service value, classification and description of the service being rendered
- Service tax amount that is payable must be there on the invoice
Payment of Service Tax:
The payment of service tax can be done via G.A.R.7. This was previously called TR6 Challan. All the branches of designated banks will accept the service tax payments. The nearest service tax office or central excise office will provide you with a list of the designated banks and its branches where you can make the payment of tax. You can also pay service tax by using the e-payment facility.
Due date for payment of Service Tax:
Partnership firm, Proprietary, Individual – The payment of service tax must be made by the fifth day and the sixth day of the month following every quarter, in case the payment is done via e-payment facility.
All other categories including trust, society and company - The payment of service tax must be made by the fifth day and the sixth day of the month, in case the payment is done via e-payment facility.
Who is liable to pay service tax in India?
Any firm, company or individual who provides services which are not included in the list negative things is liable to pay service tax.
What kind of tax is service tax?
Service is a kind of indirect tax which the recipient of various services pay indirectly to the government via service providers.
Can I pay my service tax online?
Yes, you can pay your service tax online by visiting the website of Central Board of Excise and Custom. For that, you need to have an internet banking account.
Do I need to pay penalty fees, if I don’t pay my service tax on time?
Yes, penalty will imposed on you, if your fail to pay tax on time.
What is G.A.R -7?
This is a challan by using which you can pay service tax manually. The challan is available in particular authorized banks.
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