30/06/2017 All about Service Tax & new Service Tax Rate @ 15%

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All about Service Tax & new Service Tax Rate @ 15%

Budget 2016 Update: Finance Minister while presenting the Budget 2016 introduced a new Cess called the Krishi Kalyan Cess. This Cess
would be levied on all taxable services and would be levied @ 0.5% of the total value of service. This Cess would be levied over and above the
Service Tax and the Swachh Bharat Cess.

This Cess would be applicable from 1st June 2016. Before 1st June 2016 only Service Tax @ 14% and Swachh Bharat Cess @ 0.5% would
be applicable but from 1st June 2016 Krishi Kalyan Cess would also be applicable and then the effective rate of tax would become 15%.
Before, 1st June it is 14.5%.

Recommended Read: All about Krishi Kalyan Cess

The meaning and applicability of Service Tax has been explained below in simple words for Beginners

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When we use any service be it a phone bill payment or Hire a room in a hotel we have to pay out little more than the actual rates charged. Ever
wondered why? The reason is very meek, we are made to pay service tax over and above the usual charge but the bigger question is What is
Service Tax, why do we have to pay this Tax when the tax is applicable on the company providing the service and also what is the Service Tax
Rate. If these questions bother you, find answers below.

What is Service Tax?

Service Tax is a tax which is payable on services provided by the service provider. Just like Excise duty is payable on goods which are
manufactured, similarly Service Tax is payable on Services provided.

Service Tax is payable by the provider of Service to the Govt. of India. However, the Service Provider can collect Service Tax from the Consumer
of Service (also referred to as Recipient of Service) and deposit the same with the Govt.

Recommended Read: Due Date for Payment of Service Tax

Applicability of Service Tax

This tax came into effect in 1994 and was introduced by the then Finance Minister Dr. Manmohan Singh.

Earlier Service Tax was payable only on a specified list of services but Pranab Mukherjee while delivering his budget speech on 16th March
2012 announced that this Tax would be applicable on all services except the negative list of services. From 1st July 2012 onwards, all services
(except those specified in the negative list of services by the Govt) are now liable for service tax.

However, there are some services which are composite services. For eg: Food being served in a Restaurant. Although VAT is levied on Food,
but we dont go to a Restaurant only to have Food but also to avail the services of the waiters, kitchen staff etc. Therefore, Service Tax is also
levied on Food served in Restaurant. In such cases, it is practically impossible to segregate how much the customer has paid for the food and
how much he has paid for the services.

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30/06/2017 All about Service Tax & new Service Tax Rate @ 15%

Such services are

CHARTERED CLUBpopularly known as Composite Services and in such cases an abatement scheme is announced by the govt under which
Service Tax is only levied only on a specified portion of the Total Bill.

Recommended Read: Service Tax in Restaurant is to be levied only on 40% of the Food Bill

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SERVICE TAX ON CASH BASIS

Earlier Service Tax was charged on cash basis for every service provider. Currently, it is charged on cash basis for Individual service providers
and for companies it is being charged on accrual basis i.e companies liability to deposit tax arises as soon as services are provided irrespective
of the collection of funds on the same.

However Individual Service Providers have to deposit this Tax with the Govt only when the Invoice Amount has been collected. Service Tax
Payment is deposited by the Service Provider with the Govt. quarterly in case of Individuals/Partnership and Monthly in all other cases.

Moreover, every Service Provider is now required to apply for Service Tax Registration if the Value of Services provided by him during a
Financial Year is more than Rs. 9 Lakhs, but the Tax would be payable only when the Value of Services provided is more than Rs. 10 Lakhs.

Recommended Read:-

Exemption from payment of Service Tax

All about Service Tax Registration
What is Service Tax Number

All service providers in India, except those in the state of Jammu and Kashmir, are required to pay this tax in India. Service Tax is not levied on
the persons residing in Jammu & Kashmir.

Service Tax Rate

The Service Tax Rate applicable from 1st June 2016 is 15%. This rate is an inclusive rate and SHEC and Education Cess is not required to be
charged above this.

This Tax is required to be deposited on a Monthly/Quarterly basis. It can be paid either by manually depositing in the Bank or through Online
Payment of Service Tax. In case, of excess payment of Tax by the Service Provider with the Governement, the Service Provider can either
adjust the excess amount paid or can claim Refund of the Excess Tax deposited. Refer: Service Tax Refund.

As explained above, Swachh Bharat Cess and Krishi Kalyan Cess would also be levied on all services on which Service Tax is being levied. And
therefore, the Service Tax (incl. Swachh Bharat Cess and Krishi Kalyan Cess) applicable from 1st June 2016 would be 15%.

Case Study

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30/06/2017 All about Service Tax & new Service Tax Rate @ 15%

Lets understand
CHARTERED via simple case, If a Chartered Accountant, provides services in the capacity of auditor to ABC Ltd. and the audit fees is Rs.
CLUB
1,00,000 then the service tax chargeable (incl of Swachh Bharat Cess and Krishi Kalyan Cess would be 15% on Rs. 1,00,000 i.e. INR 15,000.
Hence, the total billing to be done by CA to ABC Ltd will be INR 1, 15,000.

The segregation of Value of Service Provided (i.e. Rs. 1,00,000) and the Tax payable thereon (i.e. Rs. 15,000) shall be separately showing on
the Invoice.

In case, no tax is separately charged in Invoice or the service receiver makes partial payment then the service tax shall be proportionately taken
to be amount as on the gross amount received by the service provider for the taxable service provided or to be provided by him.

ABOUT THE AUTHOR

Karan Batra
Karan is CA by Qualification with the rare distinction of being awarded All India Rank 22. He is also the founder of this website and loves to
help people with their Tax Queries.

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Certificate Course on GST by Ashok Batra Recorded Classes in Pen Drive

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