What is Service Tax

By | November 23, 2015
(Last Updated On: November 23, 2015)

What is Service Tax ?

Service tax is, as the name suggests, a tax on Services. It is a tax levied on the transaction of certain services specified by the Central Government under the Finance Act, 1994.

It is an indirect tax (akin to Excise Duty or Sales Tax) which means that normally, the service provider pays the tax and recovers the amount from the recipient of taxable service.

Who is liable to pay service tax?

Normally, the „person‟ who provides the taxable service on receipt of service charges is responsible for paying the Service Tax to the Government (Sec.68 (1) of the Act). However, in the following situations, the receiver of the Services is responsible for the payment of Service tax :

(A) in relation to service provided or agreed to be provided by an insurance agent to any person carrying on the insurance business, the recipient of the service

(B) In relation to service provided or agreed to be provided by a goods transport agency in respect of transportation of goods by road, where the person liable to pay freight is,-

(I) any factory registered under or governed by the Factories Act, 1948 (63 of 1948);

(ll) any society registered under the Societies Registration Act, 1860 (21 of 1860) or under any other law for the time being in force in any part of India;

(lll) any co-operative society established by or under any law;

(lV) any dealer of excisable goods, who is registered under the Central Excise Act,1944 (1 of 1944) or the rules made there under;

(V) anybody corporate established, by or under any law; or

(Vl) any partnership firm whether registered or not under any law including association of persons; any person who pays or is liable to pay freight either himself or through his agent for the transportation of such goods by road in a goods carriage:

Provided that when such person is located in a non-taxable territory, the provider of such service shall be liable to pay service tax.

(C) In relation to service provided or agreed to be provided by way of sponsorship to anybody corporate or partnership firm located in the taxable territory, the recipient of such service;

(D) In relation to service provided or agreed to be provided by ,-

(I) an arbitral tribunal, or

(II) an individual advocate or a firm of advocates by way of legal services,

to any business entity located in the taxable territory, the recipient of such service

(E) In relation to support services provided or agreed to be provided by Government or local authority except,

(a) renting of immovable property, and

(b) services specified sub-clauses (i), (ii) and (iii) of clause (a) of section 66D of the Finance Act, 1994,

to any business entity located in the taxable territory, the recipient of such service.

(F) In relation to services provided or agreed to be provided by way of :-

(a) renting of a motor vehicle designed to carry passengers, to any person who is not engaged in a similar business; or

(b) supply of manpower for any purpose; or 3 [security services];

(c) service portion in execution of a works contractby any individual, Hindu Undivided Family or partnership firm, whether registered or not, including association of persons, located in the taxable territory to a business entity registered as a body corporate, located in the taxable territory, both the service provider and the service recipient to the extent notified under sub-section (2) of section 68 of the Act, for each respectively.

(G) In relation to any taxable service provided or agreed to be provided by any person which is located in a non-taxable territory and received by any person located in the taxable territory, the recipient of such service.”

What is the rate of Service Tax?

At present, the effective rate of Service Tax is 14.5% on the value of the taxable service. The above effective rate comprises of Service Tax @14%  and Swachh Bharat Cess @ 0.5% payable on the “gross value of taxable service”

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