What is Service Tax?
Whenever you avail some kind of services like going to a restaurant, you might have noticed a field called ‘Service Tax’ in your bill. Ever wondered, what it is, how it is calculated and why you pay it. To get answer to all your such questions, here I am writing this post about ‘What is Service Tax’. This post also shows how effective service tax rate is calculated. Hope it helps.
What is Service Tax?
What are Direct and Indirect taxes ?
The simplest difference is direct tax is something you pay directly to the Government and indirect tax is something you indirectly pay to the Government in form sales tax etc.
To get a better idea lets have some examples for both.
Direct Tax- Income Tax, Wealth Tax, Property Tax
Indirect Tax- Sales Tax, VAT, Excise Duty, Custom Duty
About Service Tax ?
¨ A form of indirect tax imposed on specified services called “taxable services”.
¨ Introduced in India in 1994 by Chapter V of the Finance Act, 1994 by then Finance Minister Mr. Mahmohan Singh.
¨ All service providers in India, except those in the state of Jammu and Kashmir, are required to pay a Service Tax in India.
¨ The responsibility of formulation of policy and collection of the tax lies with the Central Board of Excise and Customs(CBEC), Department of Revenue, Ministry of Finance.
¨ Payable by the service provider to the Govt of India. (monthly/ quarterly basis). Service Provider can collect this tax from the consumer of service(mentioned in the invoice).
Applicability of Service Tax
¨ Earlier service tax was payable only on specified list of services.
¨ In Budget speech of 2012, Pranab Mukherji announced , service tax will be applicable on all services expect the negative list of services.
¨ Every service is required to register for service tax, if value of services provided by him during the financial year is more than 9 lakh.
¨ Service tax would be payable only if value of services provided is more than 10 lakh.
Major Reforms in Service Tax
¨ 1994 – only three services were in the list of service list and tax rate was 5%.
¨ 14th May 2003- tax rate was increased to 8%.
¨ 10th Sep 2004- tax rate was enhanced to 10%.
Education cess of 2% also introduced.
¨ 2007- service tax rate increased to 12%.
¨ 24th Feb 2009- due to economic recession tax rate was reduced to 10%.
¨ Current service tax rate is 12%.
Effective Service Tax Rate
The effective service tax rate currently is calculated as follows.
¨ The current service tax rate is 12%.
¨ Education Cess@ 2% and Senior and Higher Education Cess@ 1% are also liable to be payable on the above service tax rate.
¤ Service Tax Rate 12%
¤ (+) Education Cess Rate 0.2%
¤ (+) Senior and higher Education Cess Rate 0.1%
¤ Effective Service Tax Rate 12.36%
So, the effective service tax rate in India is 12.36%. This post showed all you may want to know about the service tax relating from it’s history to current service tax rate.
So, next time when you avail or buy any service, make sure that you are charged fairly for service tax. Further discussions are welcome in the comments.
To know more about service tax in restaurants and hotels and food and beverages, read our other posts.
So, stay updated with what you pay.