Service tax has become popular in India and is majorly used by the central government to get payments from services rendered. Service tax is paid by businesses with some total earnings not exceeding 10 lakhs. Any business irrespective of location will have to use a calculator to determine the service tax it will have to pay.
In accordance with the provisions of Section 70(1) of the 1994 Finance Act, every person that is required to pay service tax shall ensure that the tax due him is assessed by him based on the services he provides. In addition to this, the payee will forward a return through a prescribed form and frequency to the Superintendent of Central Excise. If the tax return is not filed within the specified date, it will attract a late fee before the late return is filed.
Persons notified by the Central Government as contained in Section 69(2) of the Act shall file service returns in a prescribed form, frequency and manner as provided in Section 70(2).
Rule 7(1) of the 1994 Service Tax Rules provides that every person liable to pay service tax shall submit in every half of the year a return in Form ST-3 or ST-3A along with Form TR-6. If the payer returns the service tax provisionally, ST-3A will be used in addition to ST-3A while ST-3 is meant for regular payment.
WHAT IS A SERVICE TAX?
The indirect tax levied on services rendered by providers is referred to as service tax. The consumer of service is responsible for the payment while the service provider collects the remittance from the recipient of the service. The current rate for payment is 15% of the taxable service.
Every business owner in India that provides services of that exceeds 10 lakhs must enroll for service tax registration.
HOW DO I CALCULATE MY SERVICE TAX?
The current value of 15% charge on services was implemented on June 1, 2016, in accordance with section 66 of the Service Tax Act. The 15% is made up of a 14% service tax, 0.5% Swach Bharat Cess and a 0.5% Krishi Kalyan Cess.
The tax that can be levied is calculated based on the percentage of the amount received or paid for services provided or received. Every taxable service provided attracts a tax levy of 15%. In some instances, most amounts paid by the consumer are not taxed.
An abatement of 70% is given on some services that tour operators render, chit fund gets 30% and air transportation 60%. An abatement in this implies tax exemption. To make you understand more, a 30% abatement implies that only 70% of the total amount received for services provided will be taxed.
Example1:
If the total amount received for taxable service is Rs. 10,000, the service tax will be calculated as below:
Service Tax
= {(14/100*10,000) + (0.5/100*10,000) + (0.5/100*10,000)}
= Rs. 1500
Example 2 (with an abatement of 70%):
If the total amount received for taxable service is Rs. 10,000, the service tax will be calculated as below:
Service Tax
= 10,000*30%
= Rs. 3,000
= {(14/100*3000) + (0.5/100*3000) + (0.5/100*3000)
= Rs. 450
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WHO CAN PAY A SERVICE TAX?
Service tax is payed to the Indian Central Government by end users through the service providers. It is the responsibility of the person providing the taxable service to collect the service charges and pay to the central government.
WHAT CONSTITUTES A TAXABLE SERVICE?
Clause 44 of Section 65B of the Act provides the requirements for which a service provided by a person or agreed to be provided can be taxed. The service must not be listed in section 65D of the act or listed in the exemptions contained in Section 65B of the Act. Services that cannot be taxed include educational, coaching, funeral and agricultural services. Others include events with cultural value, trading on goods, electrical services etc.
HOW TO CALCULATE THE VALUE OF TAXABLE SERVICES
Calculating the value of taxable services is based on the manner prescribed in section 67 of the Act. The provisions stated in Subsection (1) of Section 67 on values to charge on taxable service are as follows:
- The value shall be the gross amount charged by the service provider.
- The value shall be in such amount in money including the service tax charged be the same as the provisions considered for service.
- The values shall be the amount determined by the Service Tax determination value rules of 2006.
SITUATIONS WHERE SERVICE TAX CANNOT BE CALCULATED
In situations that there are difficulties in determining the value of service, you will have to refer to the Rule 3 of the Service Tax Determination Rules 2006. According to the rule, the value can be the same for charges placed on similar services provided to others.
PENALTY FOR NON-COMPLIANCE
The penalty against defaulters is provided in Section 77(2) of the Act. The rule declares that any person who violates any part of this Act or rule provided here that is bereft of penalties, shall pay a fine which may get to Rs. 10000. This penalty applies to the inability to file service tax returns. On payment for the amount charged for the lateness in filing for service tax returns, the proceedings on the lateness of filing shall be concluded.
HOW IS THE NATURE OF ST-3 RETURN?
The report of transactions that has occurred over the said period covered in the returns is filed in the ST-3 form which is the basic document. The tax is only paid on self-assessment. Whatever is given to the department is what it relies on. The payer is bound to produce accurate information on the report; failure to do that could attract penalties.
CONDITION OF SUPPRESSION OF FACTS
Suppression of facts occurs when the service provider conceals the actual or complete information in returns. In a situation that the payer intends to evade payment service tax by suppression or fraud, the revenue can call in the extended period of limitation.
DOCUMENTS REQUIRED IN REGISTERING FOR SERVICE TAX
The documents you are to provide for service tax registration must be attested by you. In many instances, the address on your personal ID could be different from your business address; by this, copies of service bills can be used as a proof for your business address and will be accepted by the revenue department.
The following are the documents required:
- PAN of the company or business owner
- Documents with proof of identity such as Driver’s license, passport or Voter Card.
- Information on the primary bank account
- Authorization for the individual registering from partners in the company.
- Business Transaction Numbers like company Index number, customs registration number etc from agencies of government.
DOCUMENTS NEEDED FOR SERVICE REGISTRATION FOR PRIVATE LIMITED COMPANY
The following are the documents that will be needed for Private Limited Companies:
- Memorandum of Association.
- Resolution of the board with regulations associated with service tax.
- Names, Proof of identity, and address of directors.
DOCUMENTS REQUIRED FOR SERVICE TAX REGISTRATION FOR PARTNERSHIP ENTITIES
- A copy of the deed of partnership
- Proof of identity and address of the partners.
- Business Transaction Numbers like company Index number, customs registration number etc from agencies of government.
STEPS TO APPLY FOR SERVICE TAX REGISTRATION ONLINE
It is mandated that service providers with service value that reaches Rs 10lakhs within a year to apply for service tax registration. In a situation that the that services offered in a year is lower than Rs 9lakhs, then the service provider may decide to discontinue with the registration.
The steps are as below:
- Create an account by visiting aces.gov.in
- Change the password received in your email
- Fill the ST-1 form by clicking on REG – all services provided and their address can be stated in this form.
- Print a copy of the acknowledgement slip.
- Sign and then forward the hard copy to the revenue department along with the required documents.
- Be ready to receive a service tax registration certificate or a letter of refusal.
You can choose to receive your tax registration certificate by post or online. If you choose it delivered by post, the ST-2 form will be delivered with the registration number. The ST-2 will be available online in your home page if you chose to get your Service Tax Registration number online.
SERVICE TAX ON NEW PROPERTY
Construction services provided by contractors to buyers are charged by the central government. The total cost the construction consists of the cost of the property and the cost of land from which the service fee is charged. An abatement of 70% issued for services in complex constructions like civil structure or building.
Service tax is charged on the total cost for construction services like floor rise, club houses and preferred locations. Properties bought directly from contractors attracts service charge and if they are resold, it will not be levied.
IMPACT OF THE INCREASE IN SERVICE TAX TO INDIAN CONSUMERS
Following the implementation of the service tax hike, consumers have witnessed an increase in the charges placed on bill amount on equipment like electronics, houses, cars, AC railway tickets and movie tickets. Another area with a remarkable increase in bills charges include credit card bills, phone bills, dining bills, internet bills and health care services.
Manufacturers have benefitted from the reduced Krishi Kalyan Cess and payments for goods that are imported.
REVISION OF RETURNED ST-3
The provisions on the revision of return is contained in Rule 7(1) which states that the service provider may tender a revised return form in ST-3 with the intention of correcting a mistake or an error and not later than nighty days from the date of submission of ST-3.
The provisions in Rule 7(2) states that the payer who had submitted the ST-3 form within the stipulated date can submit a revised return in a period not later than one month after the initial submission.
In case you did not know, there are some websites that provide you with service tax calculation services. Calculating out the tax returns could be very tedious to some business owners. These sites will help you know your gross tax and can assist in the filing without a token charged in most of the cases. The only thing you do is to provide the inputs and automatically your returned fee will be calculated.
