What is Service Tax? Meaning and Definition

• Service Tax is an indirect tax you pay to the service provider for using the services.
• In 2017, Goods and Services Tax (GST) replaced service tax and other indirect taxes.
• Before GST, the rate of service tax was 15% which comprised 14% (basic rate), 0.5% ( Swacch Bharat cess) and 0.5% ( Krishi Kalyan cess).
• GST rates vary and depend on the type of services utilised.
• You can view the service type and applicable rates on The Central Board of Indirect Taxes and Customs website.

Ever wondered what is the difference between direct and indirect taxes? If you are earning and paying income tax, this is a direct tax, i.e. the tax you pay directly to the government.On the other hand, you pay indirect taxes to a good/service provider for using goods/services. The good/service provider pays this tax to the government. Thus, you are paying such taxes to the government indirectly. One such indirect tax is the service tax that you pay while utilising a specific service.If you are new to service tax, or you want to brush up on the basics, read this blog to find answers to important questions like 'What is service tax? What is the rate of service tax?' and 'When is service tax applicable?'

This tax is collected by service providers for the services provided to you, which is paid to the government within a stipulated time frame.However, in 2017, GST (Goods and Service Tax) replaced service tax. GST was introduced to have a unified and centralised tax on both, goods and services.The new tax system simplifies tax administration for the government and streamlines compliance for the taxpayers.

The rate of service tax before GST was 15%, which comprised 14% (basic rate), 0.5% ( Swacch Bharat cess), and 0.5% ( Krishi Kalyan cess). The rate of service tax was levied on specified services as defined by the Finance Act.You pay GST at the applicable rates, which differ according to the type of goods/services. To know the current rates of GST on services, you can visit The Central Board of Indirect Taxes and Customs website. Also Read: GST on Food and Restaurant Services - Rules & Rates on Food

With a unified tax system (GST) in place of service tax, you can visit the website of The Central Board of Indirect Taxes and Customs to learn about the types of services that attract and don’t attract GST.The website also lists the applicable rate of taxes. Here are some examples:

* Note:

• IGST stands for Integrated Goods and Services Tax, CGST stands for Central Goods and Services Tax, and SGST/UTGST stands for State Goods and Services Tax/Union Territory Goods and Services Tax.
• IGST = CGST + SGST/UTGST

If you know of anyone who filed service tax returns, they might tell you about the functionalities of ACES , supporting user registration, return filing, etc. ACES stands for Automation of Central Excise and Service Tax.In the case of GST, you can easily register for your GST number on the Goods and Services Tax website .Both service tax and GST numbers comprise 15 digits.

Some service providers may avail of exemption from service tax for certain conditions, such as:

• If you’re a small-scale service provider, you can avail of service tax exemption of up to ₹10 lakh.
• Services offered to specific units, such as special economic zones, can be exempt from service tax.
• Services offered free of cost are exempt from the service tax.

Service Tax Penalties

There are certain penalties involved under service tax, which include:

• In case of non-payment of service tax
• If you’ve failed to obtain registration
• In case of non-maintenance of documents
• If incorrect invoices are submitted
• In case of late filing of service tax returns

There are several other scenarios where service tax penalty may be applicable as per law, which can be checked on the official Income Tax website or the GSt portal.

The next obvious question in your mind might be related to the payment procedure of service tax. A consumer pays service tax while paying for the services. On the other hand, the service provider pays the tax collected to the government within the stipulated time.A similar mechanism extends to GST. If you are a consumer, you pay GST while paying for the service used. It forms a part of the invoice.On the other hand, if you are the service provider, you need to deposit the GST collected to the government within the prescribed timeframe. Also, you need to file GST returns through the Goods and Services Tax website , as prescribed.

Whether you are a consumer or a service provider, you should be a responsible citizen and abide by the applicable tax rules. If you face trouble in registering for the GST number or filing its returns, reach out to a financial expert who can guide you professionally.Professional guidance helps to comply with regulatory compliances while planning finances for your business. In addition to such expert advice, you leverage a business loan to fuel your business growth. Such loans not only help you improve your market presence but also move beyond geographical limitations. Also Read: What is GST (Goods and Services Tax) in India?