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Service Tax

In this part of the topic, we shall discuss about provisions like what services are, which entities pay such tax and the current rate of service tax. We will also discuss the compliance requirements of such tax. For a progressive detail of such provisions, please refer to our Primer on Service Tax by clicking here.  

The Mindmap can be accessed here.

Applicable Law Finance Act, 1994 with amendments introduced by subsequent Finance Acts
Taxable Event Provision of services. Service means any activity carried for consideration carried out by a person for another and includes a declared service as per the Finance Act, 1994.  Earlier, service tax was payable only on the services that were specified under the Finance Act, but since 2012 the scheme of the law has been substantially amended - service tax is now payable on any kind of service, unless it is specifically exempted. The services which are exempted from service tax are included in a ‘negative list’.
  1. 47 services which have been notified by the Central Government (as of 1stApril 2015)
  2. Service tax is exempted on services provided to units in an SEZ.
  3. Services provided by an entrepreneur in the first three years of entering into an agreement as an incubatee with a Technology Business Incubator (TBI) or Science and Technology Entrepreneurship Park (STEP) which is recognized by the Government of India, if the turnover has not exceeded INR 50 lakhs. If it exceeds INR 50 lakhs within the first 3 years, turnover up to INR 50 lakhs is not taxable.
(See the full list of exempted services at
http://www.servicetax.gov.in/notifications/notfns-2012/st25-2012.htm and further amended by notifications. One can check the latest notifications at: http://www.servicetax.gov.in/st-notfns-home.htm )
  1. Service provided from India to an offshore recipient are not taxable.
  2. In case of import of services, the recipient is required to pay service tax (this is known as the ‘reverse charge’ mechanism)
Which entities is the tax payable by? Service provider. In case services are received in India then the recipient of service (located in India) is required to pay service tax instead of the offshore provider (this is known as the ‘reverse charge’ mechanism).
Rate of Service Tax Total 14% (applicable from 1 June 2015), earlier it was 12.36%
Compliance Requirements
(see Service Tax Rules, 1994 for more details)
Registration Service provider must register by filing an application for registration in Form ST-1 (available onhttps://www.aces.gov.in/) along with requisite documents such as copy of PAN card, proof of address, copy of constitutional documents of the entity (such as the MOA and AOA of a company, partnership deed or LLP agreement as applicable).
  1. Application must be filed with the division office of the Service Tax Commissionerates in Mumbai, Chennai, Delhi, Kolkata, Bangalore and Ahmedabad or the Central Excise office in case of any other area.
  2. The application must be made in 30 days of commencement of activity. Registration usually takes 2 days from the date of submission of Form ST-1 (for single premises).
  3. A single application can be made for obtaining registration for multiple services by mentioning the same in the application. If a new taxable service is subsequently provided, a fresh Form ST-1 with amendments can be filed for endorsement of the new service category on the existing registration.
  4. When services are provided from multiple locations or offices, separate registrations are required for each office if the billing and accounting systems are not centralized. If they are centralized, then one registration is sufficient.
  5. Exemption from payment and registration for small businesses - Service providers whose total services provided are less than INR 10 lakhs are not required to pay service tax.Further, in the subsequent year, if the turnover exceeds INR 10 lakhs, an exemption on turnover of INR 10 lakhs is available, and service tax will be payable on the balance. Thereafter, no exemption is available.
If in year 1 a company’s turnover is INR 8 lakhs, no service tax is payable. If in year 2 it is INR 15 lakhs, then service tax is payable on INR 5 lakhs only (i.e. 15 – 10 lakhs). From year 3, no exemption will be available. If in year 3 turnover is only INR 3 lakhs, service tax will be payable on it.
Record Keeping The records (including computerized data) maintained by the service provider as per any other laws in force (e.g. Companies Act, or Income Tax Act) are acceptable under service tax law as well. Certain records must be submitted to the Superintendent of Central Excise while filing the ST-3 return:
  1. records prepared or maintained for accounting of transactions in regard to providing of any service (whether taxable or exempted), receipt or and payment for inputs (including input services[1]) and capital goods,  
  2. all other financial records maintained by him in the normal course of business (e.g. books of account, viz. sales register, purchase register, cash book, petty cash book, general ledger, etc.)
Invoicing Every person providing a taxable service must issue an invoice, a bill or challan signed by him or a person authorized by him. The invoice, bill or challan should be serially numbered, and should contain the following details:
  • name, address and registration number of the service provider
  • the name and address of the recipient of service
  • description, classification and value of taxable service provided, and
  • amount of service tax payable on it.
The invoice must be provided within 14 days of completion of service or receipt of payment towards value of service, whichever is earlier.
Filing Returns & Payment Returns:
The service provideris required to submit a half yearly return (counted from April to September and October to March) in form ST-3. Payment details are mentioned in the return itself and no proof is to be submitted at the time of filling return. The half yearly return is required to be filed by the 25th of the month following a particular half year (e.g. 25th October or 25th April).
If the service provider is for some reason unable to compute the actual amount earned through provision of services in a particular month, he can apply to the Assistant Commissioner of Central Excise to order a ‘provisional assessment’ of the service tax payable. If a provisional assessment is ordered, the return must be filed in Form ST-3A.
Payment timeline:
For individuals and firms service tax is paid on a quarterly basis, by the 5th of the following quarter (6th in case of online payment). For example, service tax payment for services rendered in May must be made by July 5.
For others (i.e. LLPs, companies) it is on a monthly basis, by the 5th of the following month (6th in case of online payment).
Payment must be made by submitting Form TR-6 to a bank authorized to receive payment of service tax by the Central Board of Excise and Customs (CBEC).
  1. The government has authorized ‘Service Tax Return Preparers’ (STRPs) to file ST-3 returns for service providers through a Service Tax Return Preparer Scheme in 2009.  There are 1477 STRPs functioning at various locations spread out all across the country. Details of STRPs are available on to www.trpscheme.com.
  2. Earlier, only businesses which have paid total service tax of INR 10 lakhs or more, in the preceding financial year, had to perform electronic filing mandatorily. From 1st October 2011, e-filing of returns (i.e. Form ST-3) has been made mandatory for all service tax assesses. (Service Tax Notification 43/2011)
  3. Late payment interest is 18% for late payment upto 6 months, 18 % for first 6 months and 24 % for 7th month to 1 year, & 18% for first months and 24 % for 7th month to 12 month, and 30 % thereafter,  entities having turnover which is less than INR 60 lakhs per annum.
  4. From 1st July 2011, there has been a change in determination of the timing of the transaction on which service tax liability arises. Earlier, service tax was payable from the time of receipt of money. Now, however, it is payable on the basis of issue of invoice or receipt of payment, whichever is earlier (called payment on accrual basis), pursuant to the Service Tax (Point of Taxation) Rules, 2011. However, individuals and partnership firms having turnover of less than INR 50 lakhs have option to pay service tax on receipt basis and are not required to pay on accrual basis.
CENVAT Credit Scheme – As per the CENVAT Credit Rules, 2004 a manufacturer of final products or a service provider (who is required to pay excise duty or service tax, as applicable) can avail of credit in respect of excise duty on any inputs or any input services he has availed of for the purpose of manufacturing or provision of his service.
[1] Input services refers to those services that are availed of by the service provider himself in the course of provision of his services to his customers.

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