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What Is Service Tax In India? Examples and more.

Sukanya Mukherjee -

What Do You Mean By Service Tax?

  • From July 1, 1994, the Service Tax relating provisions were brought into effect, more details of which can be found in the fifth chapter of the Finance Act, 1994.
  • As per India's constitution, the Central Government has the right to levy taxes like the Service Tax.
  • The Indian Department of Revenue supervises and manages the collection and levy of tax on behalf of India's government.
  • Direct taxes are defined as the ones that are deducted directly from the companies' and individuals' income.
  • Indirect taxation is never deducted directly. Service Tax is an indirect tax.
  • This is why the Central Board of Excise and Customs (CBEC) has the administrative control of this tax.
  • If we look at the numbers, we will see significant growth in the amount collected as Service Tax from 1994 to 2020.
  • In the financial year 1994-95, Rs. 407 crore revenue was generated with the contribution of Service Taxes.
  • For the financial year 2019-20, the Government of India predicted Service Tax collection of Rs. 6.63 lakh crores.
  • If we look at the numbers of previous years, 1.6 lakh crore was collected in the fiscal year 2014-15 and 2.1 lakh crore for the fiscal year 2015-16.

Service Tax Definition

  1. The government collected Service Tax following the Financial Act, 1994.
  2. This tax was replaced by GST (Goods and Services Tax) in July 2017.
  3. GST subsumed all the other taxes for ease of understanding and operation.
  4. In exchange for different service providers' services, the government received a section of their amount as Service Tax.
  5. For every transaction that took place after June 1, 2016, Service Tax or GST was charged 15% to the service providers.
  6. Even though the companies had to pay this charge, they collected it from the money paid to them by the customers.
  7. When Service Tax was first introduced, it was collected only for telephone, stockbrokers', and non-life insurance services.
  8. In the following years, 119 services came under the ambit of this tax.

Some services listed below are included in Service Tax:

  1. Telecommunication Service
  2. General Insurance Business
  3. Insurance Auxiliary Service
  4. Transportation of goods by road
  5. Advertising
  6. Air-conditioned restaurants
  7. Lodging (long and short term)
  8. Architect
  9. Air travel Agent
  10. Beauty Parlor
  11. Guesthouses
  12. Cleaning Service
  13. Broadcasting
  14. Clearing and Forwarding Agent
  15. Company Secretary
  16. Commercial Coaching or Training
  17. Market Research Agency
  18. Dry Cleaning
  19. Mandap Keeper
  20. Photography
  21. Outdoor Caterer
  22. Foreign Exchange Broker
  23. Franchise Service
  24. Health Club and Fitness Centre
  • The regulations laid out earlier for the Services Taxes said that the tax must be charged equally from the companies and individual service providers.
  • The tax was paid by individual service providers in the form of cash, while the companies based it on accrual.
  • However, they were only liable to pay this tax when their annual value in a given financial year exceeded INR 1 million.
  • The former state of Jammu and Kashmir was exempt from this tax.
  • The erstwhile TR6 challan or GAR 7 was used to make the payment of Service Tax by a company or an individual.
  • The Central Government permitted specific banks to receive the payment of Service Tax.
  • Also, the entities had permission to pay their Service Tax through the e-payment facility.

Components of Tax Invoice

The components listed below were always present in a tax invoice:

  1. Name of service receiver
  2. Address of service receiver
  3. Serial number
  4. Name of the service provider
  5. Address of service provider
  6. Registration number of the service provider
  7. Payable tax amount (has to be mentioned on the invoice)
  8. The taxable value of the rendered service
  9. Description of the service
  10. Classification of the service

Introduction of GST

  • Since July 2017, Service Tax was effectively replaced by GST, which subsumed many indirect taxes.
  • All the indirect taxes levied by the state and central government are listed below.
  • These taxes have now come together to form one GST.
  1. Central Excise
  2. Service Tax
  3. Countervailing Duty under Customs
  4. Special Additional Duty under Customs
  5. VAT
  6. CST
  • When these indirect taxes were effective, they created a distorted and cascading tax structure, which hampered productivity, misallocated resources, and slowed economic growth.
  • The introduction of a unified tax system like GST united the nation under one tax system, which helped remove the said obstacles.
  • The regulations laid out earlier for the Services Taxes said that the tax must be charged equally from the companies and individual service providers.
  • The tax was paid by individual service providers in the form of cash, while the companies based it on accrual.
  • However, they were only liable to pay this tax when their annual value in a given financial year exceeded INR 1 million.
  • The former state of Jammu and Kashmir was exempt from this tax.
  • The erstwhile TR6 challan or GAR 7 was used to make the payment of Service Tax by a company or an individual.
  • The Central Government permitted specific banks to receive the payment of Service Tax.
  • Also, the entities had permission to pay their Service Tax through the e-payment facility.

Model of GST in India

  • India has adopted the dual model of GST.
  • This means that the Central and State Governments will have the complete authority to administer the tax.
  • Let us consider the previous and the new system of tax collection in India.

SGST and CGST

If a sale happens within the state, instead of the earlier VAT and Sales/Excise tax, the states will charge SGST and the Centre, CGST.

IGST

For every transaction happening outside the state, instead of the Sales or Excise tax and CST, only IGST tax will be paid, which is directly received by the center.

  • As you could see from the list, GST is a kind of tax that is entirely based on the destination of the service.
  • It is also known as a consumption tax because the amount collected in the form of tax will be accrued to the state where it takes place.

Categorisation of Transactions

  • When speaking in terms of the supply of services, transactions can be classified as follows:

International Transactions

  1. If either the recipient or provider of the service is located outside India, an international transaction takes place.
  2. The transaction in which both, the provider and recipient, are residing out of India form a different classification.
  3. In every international transaction, the place of supply will either be the location of the recipient of the location of the supplier.

Domestic Transactions

  1. Such transactions occur when the supplier and the recipient of the service are in India.
  2. Generally, the registered location of the recipient of the service will be the place of supply.
  3. Suppose the service is set to be supplied to an unregistered person.
  4. In that case, the location of the service provider will be considered or the location of the recipient of the service (if the address is provided on record).
  5. The two types of domestic transactions are intra-state (occurring within the state) or inter-state (occurring between two states).

Benefits of GST

  1. The introduction of GST in India came along with certain benefits of allowance of credit.
  2. Additionally, it also provided the listed benefits to the service providers:

Reduction In Prices

  • Earlier, the traders and manufacturers had to consider taxes as a cost of their production.
  • With the introduction of GST, the customers could see a reduction in the prices of commodities as the involvement of tax in the manufacturing process will be eliminated.

Increase In Revenue

  1. If the GST remains at a revenue-neutral rate, the public revenues might shoot up because people would never think of escaping taxes.
  2. This increase will not show a significant rise in the short term of its introduction, but as the years advance, it could bring more revenue for the government.

Less Procedural Cost

  • Under GST, every assessee will get to see a reduction in their cost of compliance because they wouldn't have to maintain a big record of transactions and returns.
  • They also wouldn't have to report under various statutes. All that would be needed will be the maintenance of IGST, SGST, and CGST records.

Also Read:

GST Tax Calculator - All you need to know about GST Tax Calculation

Key Benefits of Registering Under GST

How does the Income Tax System work in India?

FAQs

Q- Is Service Tax still applicable in India?

Ans- Yes. Service Tax is still applicable in India under the name of Goods and Services Tax (GST).

Q- Who is liable for paying Service Tax?

Ans- On the receipt of Service Tax, every individual or company that provides taxable service to any recipient is liable for paying Service tax to the Government of India.

Q- What are taxable services?

  • Under Section 65 (105) of the Finance Act, 1994, you can see the list of taxable services.
  • This information can be received from the official website of the Government of India.