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Service tax in India is levied as an indirect tax*. The customer pays the tax to the service provider while paying their bill. In turn, the government collects these earnings from the service providers. The current service tax rate in India is 15%.
Service tax applies to all services that individual service providers and companies provide. You pay these taxes* as a part of your total bill. It is then payable to the Central Government of India under Section 65 of the Finance Act 1994 only if the value of services provided exceeds ₹10 lakhs in a financial year.
In this blog, we have explained service tax meaning, its applicability, and its importance. So, if this interests you, keep reading to learn more!
What Is Service Tax?
Service tax is an indirect tax imposed on any service provided and is collected from you (the consumer) as a part of your billed fee. For example, this tax can be levied for services provided at restaurants, accommodation provided at inns, etc. It is then collected from them by the government.
For example, a hotel would charge you service tax as a part of your overall bill for services received during your stay at the hotel. In turn, these fees are collected by the government from the hotel.
What is the Rate of Service Tax in India?
The government periodically revises service tax rates during every financial budget session. The current rate of service tax in India is 15%, and any changes in these rates are usually announced by the finance minister.
This rate must be paid by individuals and service providers if the value of the services provided exceeds ₹10 lakh rupees in a single financial year. This addition to the service tax rules does not apply to the Union Territory of Jammu and Kashmir.
What is the Applicability of Service Tax?
As per the new taxation system under Budget 2012, all services, except those specified in the negative list, are subject to taxation. This list of services where this tax is not applicable can be found in section 66D.
Service tax is charged to companies and individual providers. While companies can pay them on the basis of accrual, individuals have to pay this tax via cash.
As per regulation, the service provider must also pay taxes on the services they agreed to provide. So, services which have been agreed to be provided but are not yet provided are taxable.
This applies to any advance payments made to the service provider as well, even in the event of cancellation of the contract of service.
When is Service Tax not Applicable?
Small-scale service providers if their aggregate turnover value of taxable services does not exceed ₹10 lakhs in a financial year.
Transfer of title of goods where the title of the goods is transferred from one person to another in exchange for money. This also includes the sale of goods or only monetary transactions where no actual service is provided.
Services provided by an employee to an employer.
Fees payable to a court or a tribunal.
Services rendered to diplomatic missions and to officers on such missions.
Services provided to international organisations and the United Nations (UN) are not taxable.
How Do You Pay Service Taxes In India?
Online payment of service tax is mandatory for all eligible income tax players. However, certain exceptions can be made for specific requests for manual payments.
These payments can be made by logging into the official Central Board of Indirect Taxes and Customs website using your taxpayer login.
People who pay direct service tax are required to maintain their own records. This maintenance can be done electronically, and these records should be preserved for a minimum of 5 years.
Conclusion
Services tax is collected directly from the customer or service receiver and paid to the government. The current service tax rate is 15% and is not deductible from the income tax payable.
However, the cost of services to run a business, including the service tax paid, can be deducted while computing the income under the head ‘Income from business or profession’. For example, your business telephone bill, including the service tax, is considered a deductible expense.
