Service tax

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Service tax in India is an important form of indirect tax. The Central Board of Excise and Customs (CBEC) has the responsibility of collecting the levy in different states in India. It is not imposed in the state of Jammu and Kashmir. Currently, the rate is 10%.

What is service tax?

It is a type of indirect duty levied on particular services that are categorized as taxable services. The responsibility of paying this kind of levy lies on the service provider. This duty can't be levied on services that are not included in the specified list. Over last one or two years, the domain of service tax been broadened to include new services.

The goal behind imposing service tax in India is to lower the extent of concentration of taxation on business and industry without compelling the government to find the middle ground on the revenue requirements.

Initiative of the Government

Pranab Mukherjee, the Union Finance Minister of India, in his budget speech has pointed toward the government's aim of combining all levies such as Excise, Service Tax, and VAT into a Universal Goods and Service Tax by the year 2011. For accomplishing this goal, the CEST rate will be gradually changed and taken to a general rate. While tabling the budget for 2008-2009, it was declared that all small-scale service providers whose turnover is less than or equal to Rs.10 lakhs don't have to pay this tax.

Synchronization of CENVAT and Service Tax Rate

By increasing the rate of CENVAT to 10%, equal to that of Service Tax, Mr. Pranab Mukherjee, the Finance Minister has adopted the initial measure on the road to synchronizing tax on Services and Goods.

In spite of the fact the current rate of 10% may not essentially be the customary rate of Central GST, Service Tax and CENVAT will henceforth go simultaneously until GST is put into operation.

To dismiss the anticipation that the rate of CSGT might be 10%, the Finance Minister has in a conference mentioned that the Revenue Neutral Rate (RNR) of CGST is still to be decided and the CGST Standard Rate may not essentially be 10%.

Taxed Services

Since the time of its inception in 1994-1995, only three services were liable to be taxed. From that time, the Government of India has introduced almost 100 categories under its ambit, which include the following:

  • Traveling agencies (road. air, and railway services)
  • Telecommunication
  • Management consultants
  • Architects
  • Credit rating agencies
  • Colleges, universities, and schools
  • Broadcasting services (television and radio)
  • Market research analyst
  • Authorized service stations
  • Banking and other financial services
  • Cargo and shipping
  • Export import unit
  • Hospitals and health care providers/services
  • Telegraph services
  • Maintenance and repair services
  • Storage and warehousing services
  • Retail stores
  • Franchise owner
  • Packaging services
  • Transportation of goods
  • Cable operators
  • Airport services
  • Beauty parlors
  • Event managements
  • Real estate agents
  • Dry cleaning services
  • Insurance underwriting agencies
  • Consultants of different services
  • Passport services
  • Stock brokers
  • Legal advising units
  • Immigration services
  • Customer service units
  • Chartered accountant firms
  • Tourist services
  • Technical support advising firms
  • Electronic and electrical service stations
  • Automobile service stations
  • Membership of clubs and association
  • Human resource services
  • Survey and exploration of minerals
  • Share and stock transfer agent
  • Internet telephony services
  • Cost accountant
  • Transport of goods by air
  • Security agencies
  • Pager services
  • Health clubs
  • Ship management services
  • Custom house agent
  • Port services
  • Containers by rail
  • General insurance services
  • Postal services
Exemptions for Service Tax in India

The Government of India can offer part or complete exemption by circulating an exemption notice. However, it cannot be offered with retrospective effect. Some of the exemptions are as follows:

  • Small-scale service providers whose turnover is below Rs.4 lakhs per year are relieved from payment of this tax.
  • Services offered to United Nations and Global Agencies and provisions to Special Economic Zones (SEZ) are excepted from payment of service tax.
  • It is not imposed on export of services.
  • Service tax is not payable on cost of commodities and substances rendered at the time of offering services. This kind of exemption is allowable only if CENVAT credit on those commodities and substances is not collected.


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