Service Tax: All you Need to Know

Service tax is a tax levied by the government on service providers on certain service transactions, but is actually borne by the customers. It is categorised under Indirect Tax and was first introduced under the Finance Act, 1994.

Service Tax is paid by the service provider and then recovered from the customer. Service Tax was earlier levied on a specified list of services, but in the 2012 budget, its scope was increased. Services provided by air-conditioned restaurants and short term accommodation provided by hotels, inns, etc. were also included in the list of services.

As per the new regulation, service tax is also applicable on both individual service providers and companies in India. It is charged to the individual service providers on cash basis, and to companies on accrual basis. This tax is payable only when the value of services provided in a financial year is more than Rs 10 lakh. This tax is not applicable in the state of Jammu & Kashmir.

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 vary periodically.  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. The budget sessions are the periods when the Government of India, announces the variations in service tax.

Most of the cases, the service tax is directly collected by the Government from the service provider. However, in certain cases, the Government may also collect service tax from the recipient of the service.

With the Government embracing digitisation and promoting Digital India on a large scale, the process of registering for service tax has been made on-line now. The applicant for service tax can visit the website: www.aces.gov.in. However, the applicant must register within 30 days of being provided with a taxable service. Once the entire online registration process is complete, the Government will verify the process and grant the service tax registration within 2 working days. The process of registration can be completed without any verification of documents, as the supporting documents can be verified after the process is complete. As a proof of your registration, a softcopy of the registration, received from the government will stand good. However, one can take a print of this certificate and keep it safely too.

Though the Government has made it mandatory for all subscribers to pay the service tax online, due to requests from certain companies, the manual payment process is still retained. One can pay service tax online by visiting the website: www.cbec-easiest.gov.in.

The period of payment of service tax is slightly relaxed for proprietary, partnership firms or small tax payers. They can pay their service taxes, every quarterly, by the 6th of that particular month, when payment is due. However, big companies and corporates have to pay their services taxes, almost every month, before the 6th of every month.

It is mandatory by law for those who possess a Service Tax Registration Number to file their Service Tax Returns on a semi-annual basis. In other words,  all those who have their tax being assessed as Service Tax payers, and have registered for Service Tax, must file their Service Tax return once every 6 months in a financial year.

While filing the return, the Service Provider must duly fill out a particular tax return form for further processing by the government. The tax return form to be used for Service Tax Return is Form ST-3, or Form ST-3A.

Whichever form the assessee is using, the following details must be furnished:

  • The total value of taxable services charged or billed for.
  • The total value of taxable services realised.
  • The total amount of service tax payable / paid.

 

Late or non-payment for service tax due from the taxpayer to the government attracts penalties as listed below.

  • If payment is delayed for up to 6 months – 18% penalty.
  • If payment is delayed for over 6 months but up to 1 year – 24% penalty.
  • If payment is delayed for over 1 year – 30% penalty.

 

Service Tax – Frequently Asked Questions

What is Service Tax?

Service Tax is a tax levied by the government on service providers on certain service transactions.

What is the present applicable service tax?

The present applicable percentage of service tax is 15%.

Is there any provision for a centralized reservation for service tax?

Service providers having centralized accounting or centralized billing system who are located in one or more premises, at their option, may register such premises or office from where centralized billing or centralized accounting systems are located and thus have centralized registration.

Is a PAN number must for seeking the service tax registration?

A. Yes. PAN number is mandatory to apply for a service tax registration.

What should be done with the Registration in case of transfer business to another person?

 In case of transfer of business, the customer to whom the business has been transferred should obtain a fresh certificate of service tax registration.

What are the penal consequences if the Service Tax is not paid or paid late?

If a person who is liable to pay Service Tax fails to pay service tax, he shall pay in addition to such tax and interest, a penalty which shall not be less than Rs.100/- for every day during which such failure continues or @1% of such tax per month, whichever is higher. However, the penalty amount payable shall not exceed the amount of Service Tax payable.