Service Tax

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Pc Services constitute a very good spectrum of economic activities

Pc The share of the services sector in the real GDP s higher than agriculture and industrial sector

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Pc „ith the increasing role of service sector and its contribution to GDP, the government felt that this
sector should not be untaxed
Pc This decision also make tremendous revenue potential to the government
Pc t is expected that in due course, service tax would be reduce the tax burden on international trade and
domestic manufacturing sector
Pc So a planned growth of service tax would be commensurate with the goals of economic utilization and
globalization

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Pc Service tax in ndia made a humble beginning from 1st July, 1194 with only three services being covered
in the organized sector like telephone, general insurance and stock broking.

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There are two approaches to service tax
1.c ë
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c all services are taxable and a negative list is specified for services,
which are not taxable
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 only selective services are subjected to service tax. ndia follows the selective
approach of taxing selected service only.
Pc Service tax is levied on the specified service and is paid by the service provider except in a few cases
when the service receiver pays it
Pc The liability to pay service tax is there even if it is not collected from customer
Pc ëentral board of excise & ëustoms (ë
ë regulates service tax matter

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Pc Service tax is a tax on service.

Pc Service means value addition to a product that is intangible
Pc f there is no service, there is no tax.
Pc There is no service tax act; service tax is imposed by amending chapter V of finance act 1994 from time
to time.
Pc There is also no provision of deduction of tax at source from service tax
Pc ÿor charge of service tax, one has to know
àc „hat is taxable service and,
àc Value of service.
Pc Service tax s payable only and only on taxable service.

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c ndirect tax

0c Ào separate act
a.c ëentral govt. has power to make rules to carry out ST act
Dc [dministrated by ë
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½c rniform rate
a.c 10% Service tax + 2%
ë + 1% SH
ë = 10.30% actualy
üc Ào double taxation
a.c Service falling under two or more sub clauses can¶t taxed twice
*c Àot applicable in Jammu & Kashmir
Xc ëhargeable on taxable service
oc Small service provider excluded
a.c [ threshold limit of Rs. 10 lakh has been provided
¦c Taxable service/value
a.c Taxable service and value have been specially defined
cTax is generally payable by service provider
cSelf assessment
0c
xemption by notification
a.c Power have been given to government to exempt from service tax in appropriate cases by
special notification
DcVoluntary compliance
a.c There is reliance on collection of tax primarily through voluntary

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Pc Service tax introduced by virtue of chapter V of the finance act 1994, extends to the whole of ndia
except to the state of Jammu and Kashmir
Pc Service provided in the state of Jammu and Kashmir from any other state are not subject to service tax.
However service provided from Jammu and Kashmir to other state are subject to service tax
Pc Service provided beyond the territorial waters of ndia were not liable to service tax provision but under
a notification issued in 2002, the service tax provisions have been extended to designated areas in the
continental shelf and exclusive economic zones of ndia. The exclusive economic zone extends up to
200 nautical miles inside the sea from base line.
Pc Service provided within the territorial water of ndia are subject to service tax in the same way as
services provided in ndia are taxable.
Pc ndia includes territorial waters extended up to 12 nautical miles from the ndian land and mass

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Pc The rate of service tax is applied on the value of taxable services provided or to be provided
Pc There is a uniform rate of service tax on all services currently it is 10.30%
Pc The cess paid on input services is allowed as credit for payment of cess on output services.

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1.c The consideration for a taxable service shall be the gross amount charged by service provider for the
service provided or to be provided.
2.c ëonsideration in terms of money  gross amt. charged by service provider
3.c ëonsideration is not in terms of money  the value of taxable service shall be the amount of money as
with addition of service tax charged, is equivalent to consideration

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 4.c ëonsideration is not ascertainable than value of taxable service will be on valuation basis like,

„hen service provider provides similar service to valuation on the basis of charged by the service
anyother provider from other person
n any other case Shall determine equivalent money value of such
consideration
5.c f service provider not charged service tax separately n invoice than,

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6.c „hen any expenditure are incurred by the service provider in the course of a providing taxable service,
all such expenditure are included in the value for the purpose of charging service tax on said services
however, the value of any taxable service does not include the following
a.c
xpenditure incurred by service provider as a pure agent of recipient of service
b.c Deposit made by the subscriber of telephone connection
c.c [ir fare collected by air travel agent in respect of service provided by him
d.c Rail fare collected by rail travel agent in respect of service provided by him
e.c nterest of loans
f.c [mount collected by service provider on account of late payment by the recipient.
7.c The gross amount charged for the taxable service can be restricted before, during or after the provision
of taxable service.
8.c Gross amount charged includes payment by cheque, credit card, deduction from account and any form
of payment by issue of credit notes and book adjustments.

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1.c ÿind out value of taxable service

2.c 10.3% value of taxable service is the quantum of service tax
3.c [gain the tax liability calculated n step no. 2, one can claim credit for service tax paid on input service
subject to a few condition.

Partial abatement of service taxc

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[ir travel agent Person liable for paying 0.6% domestic f ones this potion select than,
service tax in relation to booking t charged for a whole ÿ and
service provided by an air 1.25% international for all bookings.
travel agent booking
Life insurance Policy holder 1% of gross amount of Only for risk cover premium
premium
Purchase or [uthorized money changer or 0.25 % of gross amount
sale of foreign foreign exchange broker of currency exchanged
currency,
money changer
„orks contract Person liable to pay service 4 % gross amount f one exercise it shall be
tax charged for work applied for entire contract.
contract
Pc Partial abatement available vides notification no. 1/2006 1st march, 2006 service tax abatement is
available in some cases. However service tax provider cannot take ë
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T credit of such duty/tax on
inputs. nput service & ëapital goods used for providing such taxable service

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n Particular service 70% gross amount is chrgeblae for service tax

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Gross amount charged (a 18,00,000 25,00,000
Value of ëapital goods used (b 15,00,000 4,00,000
alance (a (b=(c 3,00,000 21,00,000
Àoraml Service tax (c10.30% 30,900 2,16,300
Service available on abantment (a x 70% x 10.30% 1,29,780 1.80,250
Service tax available whichever s lower 30,900 1,80,250

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Pc Service tax is payable on receipt basis. [s is an indirect tax, it s payable by the service provider but it is
recovered from recipient of service
Pc ëredit for nput Service
—c Output and input service fall within the same category
Pc Registration
—c Person liable to pay service tax is required to register.
—c n case of non resident, who do not have office in ndia but liable to pay service tax in ndia, this
burden of shifted to recipient of service
Pc Payment Schedules of service tax
—c
very person providing taxable service is liable to pay service tax to the central government
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Telecommunication Director general of post & Telegraph
MTÀL chairmen
[ny person who granted license by Govt. for service
General nsurance business nsurer or reinsurance providing such service
nsurance auxiliary service provider by an insurance Person who carrying general insurance business or life
agent insurance business
Service provided by any person from a country other Recipient of such service
than india
Service  relation to transport of goods by road in a [ny person who pays or liable to pay freight either
goods carriage himself or through his agent.
Sponsorship Service „ho receive such sponsorship service
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1.c The following person must

a.c Person liable to pay service tax
b.c nput service distributor  head office
c.c
very provider of taxable service whose aggregate value of taxable service in a ÿ exceeds Rs.
9.00 Lakh

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Pc the application for registration is required to be made in duplicate form ST 1 with

1.c a copy of P[À
2.c proof of address
3.c ëonstitution of applicant (Partnership Deed, [O[, MO[
Pc Time limit for making application

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Person who liable to pay service tax „ithin 30 days from the date on which charge of
service tax is bought into force
nput Service distributor „ithin a period of 30 days of the commencement of
business or 16th June 2005 whichever is later
Small Service Provider „ithin a period of 30 days of the date in ÿ on which
the aggregate value of service exceeds Rs. 9 Lakh

Pc Time limit for granting registration

àc The department is required to issue the registration certificate in form ST 2, within 7 days of the
receipt of the application
àc n case failure to issue certificate assessee can carry his activities with a ³deemed´ registration.
Pc ëentralized registration Process
àc ëentral office or premises registered if accounting is centralized.

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„hen more tha one service is provided Single application is sufficient
„hen information is to be change or „riting an application to assistant of ë S
within 30 days of
added such change
„hen assessee stop to provide taxable Surrender the registration certificate immediately
service

Pc Tax to be pain on amounts actually received

—c Service provider charges service tax on the amount of bill raised on his client, service tax is
payable to the government on the amount actually received towards value of taxable service.
—c t is thus, not payable on amount charged in the ills/nvoice but on the amount actually
received
Pc Ào Service tax on free service
—c f service is given free of charge than service tax is not payable.
Pc Payment of service tax if not collected from the client

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 Pc Service tax on payments received in advance
—c Service tax is payable as soon as advance is received even if service  provided later
—c f when service is not taxable at the time of receipt of advance but become taxable at the time of
providing service than advance received is apportioned between two periods („hen Service was
not taxable and become taxable nd tax is paid on the part of service which is provided on or
after the service becomes taxable
—c f advance is received but no service provided than Service tax paid in advance shall be
refunded.
Pc Payment of service tax collected in excess to be paid to the central government.
Pc Due date for payment of Service tax

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1st [pr. to 30th 6th July 5th July [pril 6th May 5th May
Jun
1st july to 30th 6th Oct 5th oct May 6th Jun 5th Jun
Sep
1st oct to 31st 6th jan 5th Jan
dec
1st jan to 31st 31st mar 31st mar March 31st March 31st March
mar

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Pc [ssesses has to pay service tax in the bank designated by ë
ë in form TR 6, or any other manner is
prescribed by ë
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Pc ÿorm TR 6 is yellow in colour.
Pc Multiple service providers can use a single TR ëhallan.
1.c
± Payment of Service Tax
—c GR ± 7 challan used instead of TR 6 ëhallan
—c ÿrom 1st January 2006. n case of assesses who paid service tax of Rs. 50 Lakh or more in the
preceding ÿ have already paid during current year must make payment through
payment
2.c Payment y ëheque
—c The cheque should be deposited with the designated bank on or before the due date
3.c Rounding off
—c ncludes 50 paisa or more rounded off to Rs. 1
—c Less than 50 paisa ignored

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1.c „hen no service is provided

a.c Service provider can adjust the excess service tax paid by hm against his service tax liability for
the subsequent period if the following two condition are satisfied\
i.c [ssesses has no rendered service wholly or partly
ii.c Value of taxable service along with service tax has been refunded by the service provider

2.c „hen excess amount of service tax is paid for other reason
a.c [ assesses is allowed to adjust the excess service tax paid by him for the subsequent period. „it
effect from 1st march 2007.
b.c Self adjustment facility has been extended to all assesses subject to following condition
i.c f adjustment are other than interpretation of law, taxability, classification, valuation on
applicability of any exemption notifications

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 ii.c [djusted amount should be made only in succeeding month/Quarter.
iii.c [djustment amount should not exceed Rs. 1,00,000 for the relevant month/Quarter
iv.c The detail of self adjustment should be intimated to officer within a 15 days from the
date of adjustment.
c.c ëentralized registration can adjust the excess service tax paid without any monetary limit

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Pc f assesses is unable to correctly estimate the amount of tax payable by him, he can request in writing to
the commissioner of ë S
for payment of service tax on provisional basis
Pc n such cases, the assesses has to submit a memorandum in form ST 3[ giving detail of difference
between service taxes deposited and service tax to be paid for each month/Quarter.

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Pc f the service tax is paid after the due date, simple interest is paid at 13% for late payment
Pc nterest is paid for the period of delay not for the whole month.
Pc Period of delay is counted from the first day after the due date till the actual payment of service tax is
made.
Pc f delay s for 10 days than interest is paid for 1 days only.

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The central government can grant total or partial exemptions to taxable services following are general
exemptions««..

 c Services provided by united nation or an in international organizations

0 c Service provided to developer or units of special economic zone
ac The central government has granted full exemption to the service provider who provided taxable service
to a developer of S

bc He exemption is granted subject to the following condition
ic The developer has been approved by the board
iic The unit of S
 has been approved by the development commission of S

iiic The developer or unit of S
 shall maintain proper account of receipt & utilization of the said
taxable services
D c Goods & materials sold by service provider to recipient of service
ac f provider sold goods than that amount is not included in the taxable service amount
bc The sale value of goods and material sold as a part of service must be shown separately in thebills raised
on the recipients.
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xemption for small service provider
ac The service provider whose turnover is less than 10 lakh in the previous year will be exempt from
service tax up to Rs 10 lakh in next ÿ
ü c Service provided by reserve bank of india
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xemption to technology business ncubator, Science and Technology
ntrepreneurship park (ST
P and
ncubates
ac ST
P ± Software developer ëompany
bc ncubates „ho help for development of T
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xemption is granted to incubates subject to following condition
ic ncubates should be located within the premises of the incubator
iic Total business turnover of incubates entrepreneurship does not exceed Rs. 50 Lakh during the
preceding financial year.
iiic The exemption is avail to incubate for a period of 3 year.

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X c Services provided by a digital cinema service provider.
ic f service rendered by satellite, microwave or global communication line that¶s only exempt but
physical means including ëD/DVD that¶s not exempt.
o c Service provided by Residential welfare association
ac Monthly contribution does not exceed Rs. 3000/Month
¦ c Drug & Medicine Produces

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1c ÿurnishing of returns

a.c „ho paid tax are must file the return
2c ÿorm of Return
a.c ST 3
3c Periodicity for filing return
a.c Half year basis ± [pril to September
October to March
4c Due dated for filing return
a.c 1st [pril to 30th Sep. ± 25th Oct is Due Date
b.c 1st Oct. to 31st Mar. ± 25th [pril is Due Date
c.c f the 25th [pril or 25th Oct. is a public holiday, than filled on the immediately succeeding
working day.
5c ëontents of Return
a.c Half ear Period detail
b.c Àame of the [ssesses, Registration Ào.
c.c ëategory of Taxable Service
6c Documents submitted along with return
a.c ëopies of TR 6 challan indicate payment of service tax for Month/Quarter
b.c Memorandum in form ST 3[ (in case of Provisional [ssessment
7c ÿirst Return
a.c [t first time furnish all the accounts which maintained by assesses are inform to the officer
8c Return when no service provided
a.c Must file a ÀL return
9c Return in case of multiple service
a.c Service wise detail should be given in the return instead of Single figure
10cRevised Return
a.c [ccording to Rule 7 of Service tax rules it allows to assesses to rectify mistakes and file a
revised return in form ST 3, in triplicate within 90 days from the date of filing the original
return
11c
ÿiling of return
a.c [ssesses should have a 15 digit STP code for e filing
12cPenalty for late filing of return
a.c Overall maximum limit is Rs. 2000
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rp to 15 Days Rs. 500
15 to 30 Days Rs. 1000
31 Days and On Rs. 1000 to Rs. 100/day from 31st day onwards
but the total penalty can not exceed Rs. 2000

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ÿor non Payment or Late Payment Pc Rs. 200/Day during which failure contains
Pc nterest s charge 2%/Month which the failure
contains

„hichever is higher is selected but the penalty cannot

exceed the amount of service tax which was payable.
penalty can be waived or reduced if proper cause is
shown
Penalty for non Obtain Registration Pc Rs. 5000 or
ÿor not furnishing required information Pc Rs. 200/Day whichever is higher

ÿor non maintenance of books of account and Liable to penalty which may extent to Rs. 5000
documents.
ÿor ÿailure to pay tax electronically when
required.
Penalty for issuing incorrect invoice.
Penalty for suppressing value of taxable service The penalty can be imposed if

Pc Service tax is applicable but not paid

Pc Service tax has been short levied or paid
Pc Service tax has been refunded erroneously

The quantum penalty for aforesaid cases is 100% of

taxes evaded but not exceed 200%.
Other Points

Pc nterest and penalty paid within 30 days from the date of communication of order of the central excise
officer. The amount of above penalty shall be 25%
Pc f this penalty is payable, penalty for non payment or late payment service tax can not be imposed.

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1c [dvising ëlients

2c Procedural Requirements
3c Personal representation
a.c [ppear before the assessment authority for appeal
4c ëertification and [udit
5c ëonstant updation of Law and Provisions

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Service tax is said to be the tax of 21st century because of its potential to raise revenue for the government it is
open for a number of challenges.
[ few of them are related to the nature and growth while others to procedural aspects of the service tax
collection.

1c n order to speed up and smoothen the service tax administration in ndia, it is required that exists a
separate legislation along with distinct mechanism that exclusively looks after collection of Service tax
2c [ separate legislation would bring greater clarity in service tax procedure and promote govt. revenue
from tax collection along with tax environment

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 3c The twin goal of revenue maximization introduction of the culture of voluntary tax compliance also
throw up major challenge before the service tax administration in the country.
4c Services are by nature, intangible & Spread across the nation in both organized and unorganized sector.
5c Service provides in all sectors can not easily identified & rought under the Tax Àet
6c Some services are provided by people with low education level who can not easily follow the tax
administration provision.