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Key Highlights
- 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?'
What is Service Tax?
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.
What is the Rate of Service Tax?
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
Where is Service Tax Applicable?
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:
| Particulars | CGST* (Rate in %) | SGST/UTGST* (Rate in %) | IGST* (Rate in %) |
| Service by way of access to a road or a bridge on payment of toll charges | Nil | Nil | Nil |
| Transport of passengers, with or without accompanied belongings, by air in economy class. | 2.5 | 2.5 | 5 |
| Transport of passengers by air, with or without accompanied belongings, in other than economy class. | 6 | 6 | 12 |
| Postal and courier services | 9 | 9 | 18 |
| Gambling | 14 | 14 | 28 |
* 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
How Do You Register for Service Tax?
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.
Service Tax Exemptions
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.
What Is the Procedure to Pay Service Tax?
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.
Comply with Tax Rules and Be a Responsible Citizen
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?
FAQS - FREQUENTLY ASKED QUESTIONS
What is service tax?
Service tax is an indirect tax paid to service providers for using their services. It was assimilated into the Goods and Services Tax in 2017.
What is the meaning of an indirect tax?
When you pay tax directly to the government it is direct tax, for example, income tax. Whereas, you don’t pay indirect tax directly to the government but through an intermediary like a service provider. GST is an example of an indirect tax.
What is the rate of service tax?
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).
Is the rate of service tax and GST the same?
GST has replaced this indirect tax and is charged at varying rates depending on the type of services utilised. The applicable rates are available on The Central Board of Indirect Taxes and Customs website.
What is service tax number?
It is a 15-digit number that is allocated to the taxpayer. Likewise, GST is also a 15-digit number unique to a taxpayer.
Is service tax and service charge the same?
No. They are different. The tax is levied by the government and the charge is levied by the service provider like a restaurant. The tax gets deposited with the government, but the charge is retained by the restaurant.
What is IGST?
IGST stands for Integrated Goods and Services Tax and is nothing but the addition of CGST (Central Goods and Services Tax) and SGST/UTGST (State Goods and Services Tax/Union Territory Goods and Services Tax).
How can I know the list of services exempted from GST?
You can know the list of services with ‘Nil’ GST on The Central Board of Indirect Taxes and Customs website.
What is the payment procedure of service tax?
It is an indirect tax that a consumer pays to the service provider while paying for the services. On the other hand, the service provider pays the tax collected to the government within the stipulated time.
What is the payment procedure for GST?
Similar to the above, if you are a consumer, you pay GST while paying for services used. But, if you are a service provider, you need to deposit the GST collected to the government within the prescribed timeframe.
The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.
