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Service Tax and New Service Tax Rate @ 14.5% – All Details
Background of Service Tax
The journey of taxation of services began by selective taxation of just three services on July 1, 1994. The first year collections now appear a very modest at Rs 407 crore.
After appearing largely as just-another-tax for the first 8 years, with collections touching Rs 3,302 crore in 2001-02, service-tax took some giant leaps in the next 7 years, both on the back of wider coverage as well as increase in tax rate, reaching Rs 60,941 crore in 2008-09. Next two years saw the growth somewhat moderating with collections reaching Rs 70,896 crore in 2010-11.
Budget 2012 has ushered a new system of taxation of services; popularly known as Negative List. The new changes are a paradigm shift from the existing system where only services of specified descriptions are subjected to tax. In the new system all services, except those specified in the negative list, will be subject to taxation. For those who like to use modern-day terminology one could call it taxation of service version 2.0
Service Tax and Constitution of India
No tax can be levied without authority of the law and no law can be made without the authority of the constitution.
Accordingly, power to levy service-tax has been derived from the entry No. 92C of the List I (called as Union list) of the Seventh Schedule read with article 246 of the Constitution of India. Entry No. 92C is appearing as under: “92C Taxes on services”. This entry has been inserted by the Constitution (Eighty-eighth Amendment) Act, 2003.
What is Service Tax
Service-Tax is a tax levied by Central Government of India on services provided or to be provided excluding services covered under negative list and considering the Place of Provision of Services Rules, 2012 and collected as per Point of Taxation Rules, 2011 from the person liable to pay service-tax.
- Download Latest Service-Tax Rules
What Is Service
‘Service’ has been defined in clause (44) of the new section 65B and means –
- any activity
- for consideration
- carried out by a person for another
- and includes a declared service.
The said definition further provides that ‘Service’ does not include –
- any activity that constitutes only a transfer in title of (i) goods or (ii) immovable property by way of sale, gift or in any other manner
- (iii) a transfer, delivery or supply of goods which is deemed to be a sale of goods within the meaning of clause (29A) of article 366 of the Constitution
- a transaction only in (iv) money or (v) actionable claim
- a service provided by an employee to an employer in the course of the employment
- fees payable to a court or a tribunal set up under a law for the time being in force
Taxability of Service Tax
According to Section 66B, to be taxable, a service should be –
- provided or agreed to be provided
- by a person to another
- in the taxable territory, and
- should not be specified in the negative list.
Please note that a taxable service may also be exempt under notification number 25/2012 dated 20/06/2012.
From the point of view of service provider it is also relevant to note that the service may be taxable but the service provider is not liable to pay service-tax if he is availing exemption available to the small service provider.
Updates On Service Tax
New Update applicable from 15-11-2015 – Effective rate of service tax plus SBC, post introduction of SBC, would be [14% + 0.5%].
Current Service tax Rate – 14.5%
Must Read – Swachh Bharat Cess – Levy, Collection & Point of Taxation
Budget 2015 Update: Finance Minister while presenting the Budget 2015 has increased the Service Tax Rate from 12.36% to flat 14%. This new rate of Service Tax @ 14% is applicable from 1st June 2015.
The rate of Service-Tax for services provided before 1st June is 12.36% and for services provided after 1st June is 14%. The Notification can be downloaded from here – Notification No. 14/2015 for applicability of Service-Tax @ 14% from 1st June.
If the Invoice is raised in the month of May 2015 for Services to be provided in June 2015 – Rule 4(b) of Point of Taxation Rules will apply and the rate of service-tax applicable would be the date on which the payment is being made. For more on this kindly refer: Rate of Service Tax if invoice raised in May 2015 for services to be provided in June 2015
Applicability of Service tax
Define the applicability of Service-tax provisions given under Sec 64 of the Finance Act 1994
This Chapter extends to the whole of India, except the State of Jammu and Kashmir.
Definition of INDIA: According to Sec 65B(27) India means –
- (a) the territory of the Union;
- (b) its territorial waters, continental shelf, exclusive economic zone or any other maritime zone;
- (c) the seabed and the subsoil underlying the territorial waters;
- (d) the air space above its territory and territorial waters; and
- (e) the installations, structures and vessels located in the continental shelf of India and the exclusive economic zone of India, for the purposes of prospecting or extraction or production of mineral oil and natural gas and supply thereof
Rate of Service Tax
|Period||Service tax rate||SWB. cess||EC||SHEc||Effective levy|
|01.07.94 to 13.05.03||5.00%||0.00%||0.00%||0.00%||5.00%|
|14.05.03 to 09.09.04||8.00%||0.00%||0.00%||0.00%||8.00%|
|10.09.04 to 17.04.06||10.00%||0.00%||2.00%||0.00%||10.20%|
|18.04.06 to 10.05.07||12.00%||0.00%||2.00%||0.00%||12.24%|
|11.05.07 to 23.02.09||12.00%||0.00%||2.00%||1.00%||12.36%|
|24.02.09 to 31.03.12||10.00%||0.00%||2.00%||1.00%||10.30%|
|01.04.12 to 31.05.15||12.00%||0.00%||2.00%||1.00%||12.36%|
|01.06.15 to 14.11.15||14.00%||0.00%||2.00%||1.00%||14.42%|
The Service-Tax Rate applicable from 1st June 2015 is 14%. 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 Government, the Service Provider can either adjust the excess amount paid or can claim Refund of the Excess Tax deposited.
Break up of 14.5 % ? ( S.Tax ,Ed Cess , SHEC, SBC ??? )
You only have to levy Service-Tax @ flat 14.5%. Edu Cess and SHEC are not required to be disclosed/ charged separately.