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Service tax is an indirect tax collected from the recipients/consumers of services and goods by intermediaries (service providers) and paid to the government. So, whether it's your restaurant bill or cab charges, you need to pay service tax to service providers for all services offered domestically, except the negative list of services.

Types of Service Tax

Normal Charge

Reverse Charge

Partial Reverse Charge

The recipient of service pays service tax to the service provider, and the latter submits the same to the government.

In this type of service tax, the recipient of service pays service tax directly to the government.

It is a very rare type of service tax. Some portion of the tax is payable (directly) by the recipient of service while the rest is paid by the service provider (directly) to the government.

 

A few decades back, a committee on tax reforms headed by Dr. Raja Chelliah recommended the introduction of service tax. Later in 1994, Service tax in India was levied at a nominal rate of 5% on three services only – telephone bills, tax brokers, and non-life insurance.

Can you believe the service tax rate was just 5% in the beginning, and now it’s 15 %? A continuous and steady rise in service tax has been witnessed since its inception. Below is the table of a steady increase in the rate of service tax in India since 1994.

Read: Term + Ulip Combo For Optimal Returns, Risk and Tax Savings

Time period

Service tax rate

01/07/1994 – 13/05/2003

5%

14/05/2003 – 09/09/2004

8%

10/09/2004 – 17/04/2006

10.20%

18/04/2006 – 10/05/2007

12.24%

11/05/2007 – 23/02/2009

12.36%

24/02/2009 – 31/03/2012

10.30%

01/04/2012 – 31/05/2015

12.36%

01/06/2015 – 14/11/2015

14%

15/11/2015 – 31/05/2016

14.5% (14% Service Tax + 0.50% Swach Bharath Cess)

01/06/2016 – 30/06/2017

15% (14% Service Tax + 0.50% Swach Bharath Cess + 0.50% Krishi Kalyan Cess)

 

Overall, the service tax rate increased three times because of the introduction of cess on the amount of service tax. Cess is an additional tax charged over and above the basic tax liability by the state or central government to raise funds for a specific purpose. Service tax in India includes three types of cess – Education cess (3%), Swach Bharat Cess (0.5%) and Krishi Kalyan Cess (0.5%).

How Can You Calculate Your Service Tax?

Now that you know about the service tax rate in India (15%) including 0.5% Swach Bharat Cess and 0.5% Krishi Kalyan Cess, the calculation of service tax on any taxable service can be explained by the following illustration:

Let’s say the value of taxable service is Rs. 1000, then the service tax for it would be:

= (14 × value of taxable service)/100 + (0.5Swach Bharat Cess × value of taxable service)/100 + (0.5Krishi Kalyan Cess × value of taxable service)/100

= (14 × 1000)/100 + (0.5 × 1000)/100 + (0.5 × 1000)/100

= 140 + 5 + 5

= Rs. 150

So, the net worth of that particular good or service becomes 1000 + 150 = Rs. 1150

Service Tax Due Date

Based on the type of service provider, service tax payment due date varies as follows:

Type of service provider

Type of payment

Service Tax Due date

Individuals

Quarterly

July 6th, October 6th, January 6th, and March 31st of the financial year – for online payment

July 5th, October 5th, January 5th, and March 31st of the financial year – for offline payment

Proprietorships

Quarterly

July 6th, October 6th, January 6th, and March 31st of the financial year – for online payment

July 5th, October 5th, January 5th, and March 31st of the financial year – for offline payment

Partnership Firms

Quarterly

July 6th, October 6th, January 6th, and March 31st of the financial year – for online payment

July 5th, October 5th, January 5th, and March 31st of the financial year – for offline payment

Private Limited Company

Monthly

6th of each month, and March 31st – for online payment

5th of each month, and March 31st – for offline payment

Limited Liability Partnership (LLP)

Monthly

6th of each month, and March 31st – for online payment

5th of each month, and March 31st – for offline payment

 

However, irrespective of the type of service provider, all entities need to file service tax returns twice a year. The service tax due date for return filings is 25th of April and 25th of October every year.

Read: How To Save Tax Under Section 80C?

Besides the service tax rate, the number of services included in the service tax regime has been progressively increased since its introduction. Below is the table showing a progressive increase in the number of services from 3 in 1994 to 119 in 2011-12.

Financial year

Number of services

1994-1995

3

1995-1996

6

1996-1997

6

1997-1998

18

1998-1999

26

1999-2000

26

2000-2001

26

2001-2002

41

2002-2003

52

2003-2004

62

2004-2005

75

2005-2006

84

2006-2007

99

2007-2008

100

2008-2009

106

2009-2010

109

2010-2011

117

2011-2012

119

 

From July 01 2012, service tax was imposed on all domesticated services except the negative list of services. In 2012, the negative list included 39 services, and since then, this list is revised every year.

Does Service Tax Apply To Every Service in India?

If you are a service provider of any of the following services, then you don’t need to worry about how to save service tax. All these services are exempted from service tax in India.

  • Any service that falls under the list of negative services.
  • Any service offered to any international organization or the UN (United Nations).
  • Any service rendered to units of Special Economic Zones (SEZ) or developers of SEZ.
  • Any service rendered free of cost.
  • Any taxable service rendered to diplomats and their family members for any diplomatic or official mission.
  • Any service received by exporters or used in export of services.
  • All small scale service providers can avail service tax exemption in the next financial year if their total value of taxable service is less than 10 lakhs in the previous financial year. It is known as a Small Scale Exemption.

Which Investment Plan Gives You the Best Returns?

Service Tax Rule For Registration

As per the service tax rule for registration, all input service providers and service providers whose total value of taxable services is more than 9 lakhs must register themselves for service tax within 30 days from the day of providing taxable services. To obtain registration for service tax, follow the below steps:

  • Visit the official website of ACES (Automation of Central Excise and Service Tax).
  • Fill the form ST 1 by providing details regarding name, phone number, address, PAN number and more to get registered.
  • Upon successful submission of the form, your username and password will be provided on your registered email id within 24 hours.

Is Service Tax Applicable in India Now?

No, the Goods and Service Tax replaced the service tax in India after its launch on July 01, 2017. The GST is a comprehensive indirect tax as it replaced almost all indirect taxes levied by central and state government (except a few state taxes). The tax slabs under GST for goods and services are: 0%, 5%, 12%, 18% and 28%.

The introduction of GST lists out both advantages and disadvantages; however, broadly speaking about its impact on the insurance sector, it raises the premiums for health, life, and car insurance. Under the service tax, the rate was 15% whereas, under GST, the tax rate reached 18% for most of the insurance policies. This hike of 3% in tax has disturbed the budget of the middle-class family. 

On the contrary, life insurance policies and endowment policies continue to offer tax benefits to the policyholders. So, in every situation, your insurance policy benefits you in one way or another. You need to choose the right insurance plan for you. In case you need any help in buying an insurance plan, feel free to contact the customer services of PolicyX.com. We are happy to serve you to our fullest potential.

Naval Goel is the founder of PolicyX.com. He is an Associate Member of the Indian Institute of Insurance`, Pune. He has been authorized by IRDA to act as a Principal Officer of PolicyX.com Insurance Web Aggregator.
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