What is Service Tax? and Who is liable to pay Service Tax?

      Meaning and Levy

As the name suggest, Service Tax is the tax on the taxable services provided by you. In a broader concept, almost every service comes under the ambit of Service Tax in India. Service tax is governed by Finance Act, 1994 and rules made there under.

Service tax is applicable to every service other than mentioned in Negative list of Services.

Service tax is an indirect tax which is actually borne by the ultimate consumer. The most important thing is to understand is that it applies only to services and not on sale of products. Service tax is a tax exactly opposite to VAT. Where VAT is applicable, service tax will not be there.

Cases where Service tax and VAT both levy

There is a fundamental difference between the Service tax and VAT, but still there are many cases where both apply and this amount to double taxation sometimes. Here are the few examples of cases where service tax and VAT both applies

1. Restaurant services (please refer image 1.1)
2. Construction services (also known as works contract service)
3. Real estate affairs

Hence, it is important to understand your nature of services first to decide the application of law.

Figure 1.1 here reflects the invoice where service tax and VAT both is applicable.

Who is liable to Pay service Tax in India?

Every service provider is liable to pay service tax in India. Though service tax is an indirect tax which is collected by the ultimate consumer, but still it is the duty of the service provider to collect those taxes and pay to the government. If in any case, the service tax is not collected from the consumer then the same has to be paid by the service provider from his own pocket.

This is important to note that the duty to pay the service tax liability is on the service provider and not the service receiver.

E.g. import of services, Legal services etc.

There are two categories in this rule of reverse charge mechanism i.e.:

• Full Reverse Charge namely: Import of services, Legal services etc.

• Partial Reverse Charge: Renting of Motor vehicles, works contract.

Rate of Service Tax: Current rate of Service tax is 14.5% and from 1^st June 2016 onwards, the rate of service tax will be 15%.

Conclusion

Service tax is a very wide concept and should be taken care of properly to avoid any direct contact with government authority.

Click here for Service tax Registration Online in India.

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