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What Service Tax in India?

Understanding service tax in India- what is it, relevant sections, point of taxation, applicable rate, service tax return and payment due date.

Service tax in India is a type of indirect tax charged on the services provided by a service provider. The Central Government via the Finance Act, 1994 governs the taxability of services provided by an individual or a company under Section 66B. The tax is imposed on all the services provided or to be provided in the taxable territory of the country. Services covered through negative list are exempted, along with services listed under the Mega Exemption Notification 25/2012 as amended by Notification No. 40/2016. The Place of Provision Rules 2012 and the Point of Taxation Rules 2011 are considered while determining the tax liability. Service tax is charged at the rate of 15% currently. The taxability arises once the value of services exceeds Rs. 10 lakhs during the financial year.

The other relevant sections related to service tax are as under:

Sec 66 D Sec 66 C Sec 66 E
States a list of such services on which service tax is not collected. The taxability does not arise for these services. The list of such services is known as negative list It is very important to identify the place of service provision as the tax is levied on services rendered in taxable territory. This section states the rules to identify the place of provision so that there is no ambiguity. This section provides for a list of activities of multiple nature that are deemed to be services. These are known as declared services. Service tax is applicable on all the services mentioned in the list

Other than the above critical sections, the following should also be kept in mind:

  • At present, there are nineteen services covered in the negative list of services (Section 66D) and nine in the declared services list (Section 66E).
  • Section 66F states the taxability of bundled services and those services which need different interpretation and treatment.
  • The Finance Act has also provided abatement on certain specified services. Services related to finance, construction, transportation and food are some of the services that are abated.
  • Service tax is not levied on export of services as per the Finance Act. Export of services is defined by the Rule 6A of Service Tax Rules, 1994.

The Point of Taxation: The Point of Taxation Rules, 2011 focuses on simplifying the determination of that point at which service tax in India becomes payable. According to these rules, it becomes payable on the date falling earliest of:

  1. Invoice Date of the service provided; or
  2. Date on which the service to be provided gets completed; or
  3. Date on which payment for the service is received.

Taxable Territory: Except for the state of Jammu & Kashmir, the whole of India is considered to be a taxable territory. It also includes territorial waters (air space, water, and seabed), exclusive economic zones, maritime zones and the continental shelves.

Governing Authority: Service tax is considered to be a self-assessed tax. Still, the Central Board of Excise and Customs (CBEC) is regarded as the governing body of service tax laws. It lays down all the procedures for the assessment of service tax in India. The penalties for non-payment and interest to be charged for delayed payments are all looked after by CBEC.

Registration: If the total value of services provided exceeds Rs. 9 lakhs during the financial year, the service provider is required to apply for Service Tax Registration.

Rate of Service Tax: With the declaration of Union Budget 2016, the rate of service tax in India becomes 15%, bifurcated as:

  • Basic Rate = 14%
  • Swacch Bharat Cess = 0.5%
  • Krishi Kalyan Cess = 0.5%

Due Dates for filing returns: The service tax returns are filed half-yearly, i.e., by 25th October and 25th April for half year period ending in September and March, respectively.

The monthly or quarterly due date for service tax payment depends on the nature of service provider, irrespective of half-yearly return filings. The following table clarifies the due date of service tax payment for different entities.

Type of Person Time of Payment Due Date
For Online Payment For Physical Payment
Individual/Partnership Firms Quarterly 6th of the subsequent Quarter 5th of the subsequent Quarter
Others Monthly 6th of the subsequent Month 5th of the subsequent Month

Exception: Service Tax payment date for the month/quarter ending in March is 31st March.