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What is Service Tax In India?

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.

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Tata AIA Life Insurance

A joint venture between Tata Sons Pvt. Ltd. and AIA Group Ltd. (AIA),  Tata AIA Life Insurance  is one of the leading life insurance providers in India. We post everything you need to know about life insurance, tax savings and a variety of lateral topics such as savings and investments in this space. You can access and read a host of different blogs, articles and pages at the Tata AIA Life Insurance Knowledge Center or get in touch with us with any queries or questions!

View all posts by Tata AIA Life Insurance

Frequently Asked Questions (FAQs)

What parts of India does service tax not apply?

Except for the Union Territory of Jammu and Kashmir, the whole of India is considered a taxable territory under applicable service tax rates.

What are the due dates for service tax payment and return filing?

Taxpayers must file for a return online on a half-yearly basis as soon as they start paying service tax regularly. 

Individuals, proprietary firms, and partnership firms must pay service tax on a quarterly basis. The payment is usually made on the 25th of the month following the quarter.

How is service tax collected?

Service tax is collected by the service provider directly from the recipient/customer, which the government then collects from the service provider. Sometimes, the government may collect the service tax from the recipient instead. This is called a ‘Reverse Charge Mechanism’.

What are the relevant sections related to service tax under the Finance Act?

There are three main sections under the Finance Act that you must refer to when looking into service tax rules and regulations:
 

  • Section 66D: States a list of services where service tax is not collected, i.e., The Negative List.

  • Section 66C: States the rules to identify taxable territory so there is no ambiguity.

  • Section 66E: States a list of activities of multiple nature deemed as services where service tax is applicable. These are known as declared services.

How can tax-paying individuals reduce their taxable income?

Individuals can save on income tax by claiming tax deductions under various Sections of the Indian Income Tax Act. For instance,  Section 80C offers tax deductions for investments made in a wide range of financial products, such as life insurance, PPF, NPS, ELSS, etc. Similarly, Section 80D offers tax deductions for premiums paid for health insurance plans.

Individuals can see the applicable sections where they can apply for tax deductions, lowering their taxable income.

Disclaimer

  • Insurance cover is available under the product.

  • The products are underwritten by Tata AIA Life Insurance Company Ltd.

  • The plans are not a guaranteed issuance plan, and it will be subject to Company’s underwriting and acceptance.

  • For more details on risk factors, terms and conditions please read sales brochure carefully before concluding a sale.

  • This blog is for information and illustrative purposes only and does not purport to any financial or investment services and do not offer or form part of any offer or recommendation. The information is not and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action.

  • Please know the associated risks and the applicable charges, from your Insurance agent or the Intermediary or policy document issued by the insurance company.

  • Every effort is made to ensure that all information contained in this blog is accurate at the date of publication, however, the Tata AIA Life shall not have any liability for any damages of any kind (including but not limited to errors and omissions) whatsoever relating to this material.

  •  Tax: *Income Tax benefits would be available as per the prevailing income tax laws, subject to fulfilment of conditions stipulated therein. Income Tax laws are subject to change from time to time. Tata AIA Life Insurance Company Ltd. does not assume responsibility on tax implications mentioned anywhere in this document. Please consult your own tax consultant to know the tax benefits available to you.