Nature and Evaluation of Service Tax

Nature of service tax

As per section 65 (95) of finance act , 1994  ,’sevice tax ‘ means tax leviable under the provision. Section 66 of Finance Act, 1994 is the charing section  of service tax. Section 66 provides that there shall be levied a tax (service tax) @12% of the value of taxable service referred to in various clauses of section 65(105).It will be collected in a manner as may be prescribed. Though the tariff rate is 12%, the effective rate is 10% w.e.f 24-2-2009.Thus; total service tax payable is 10.30%w.e.f.24-2-2009.

In respect of each type of  service , it is necessary to determine two things namely

(a) Taxable Service and

(b) Value of taxable service.

Taxable Service – As per section 66 of Finance Act, 1994, service tax is payable on taxable service. Service 65(105) of Finance Act 1994 defines what “taxable service” is. The definition is different for each class of service, e.g. in case of stock broker, any service provided by stock broker to investor in connection with sale or purchase of securities listed on a recognized stock exchange will be “taxable service”.

Service tax can be collected by  service provider from service recever – Service tax  is on indirect tax. Though liability is on provider, the tax can be collected by him from service receiver.

Excise  and service tax are independent taxes– Though excise and  service tax are administered by same department ,both are independent taxes. Payment of excise is not same thing as paying service tax .… Read the rest

Features of Service Tax

Service tax is a tax levied by the government on service providers on certain service transactions, but is actually borne by the customers. It is categorized under Indirect Tax and came into existence under the Finance Act, 1994. The salient features of levy of service tax are:

1.  Scope: It is leviable on taxable services ‘provided’ or ‘to  be provided’ by  a service provider. The services ‘to be provided’ in future are taxed only if payment in its respect is received in advance.

Two separate persons required  Payment to employees not covered: For  charge of service  tax, it is necessary that the service provider and service recipient should be two separate persons acting  on ‘principal to principal basis’. Services provided by an employee to his employer are not covered service tax and, therefore, salaries or allowances paid to them cannot be charged to service tax.

2.  Rate: It is leviable @ 12% of the value of taxable services. Education Cess @ 2% and Secondary and  Higher Education Cess @ 1 % are chargeable on the amount of service tax, thus, making the effective  rate of service tax at 12.36% of the value of taxable service.

Update: While presenting the Budget 2015, the FM had increased the Service Tax Rate from 12.36% to 14%. This new rate of Service Tax @ 14% was applicable from 1st June 2015. Moreover from 15th Nov 2015, Swachh Bharat Cess @ 0.5% also got applicable. Budget 2016 has proposed to impose a Cess, called the Krishi Kalyan Cess, @ 0.5% on all taxable services.… Read the rest

Introduction to Service Tax

Service tax is a tax on service. This is not tax on profession, trade. Calling or employment but is in respect of service rendered . If there is no service, there is no tax. As per Webster’s Concise Dictionary ‘service’ means a useful result or product of labor, which is not a tangible commodity.

Thus basically service is a value addition that can be perceived but cannot be seen, as it’s tangible. However, usage of some goods during the course of rendering the service would not mean that there is no ‘service’ .It is the predominant factor in each case, which is to be studied to arrive at a conclusion.

Service tax is a tax levied on service providers in India, except the State of Jammu and Kashmir.

Service Tax, introduced from the financial year 1994-95 now covers as many as 41 services within its ambit. Service sector, which has an average annual growth rate of value addition of 7.9%, contributes nearly 50% of the GDP. The Economic Survey 2001-2002 observed that bringing more services under the tax net can offset the likely revenue loss through lower custom tariff. Finance Act, 2001 added 15 new services to the list of taxable services with effect from 16-7-2001 & it is expected that coming budget will add further services under the tax net. We are moving towards a total value added tax regime which was partially expected to come into force with effect from 1st April, 2002 replacing the local sales tax in about 17 states.… Read the rest