Indirect Tax

Basic Information on Service Tax in India

Service Tax is a tax which is paid by the provider of service. Any person whose revenue from providing of any type service (whether Consultancy/Affiliate/Designing/ SEO or any other service) during the year is more than Rs. 10 Lakh is liable to pay service tax as per the tax rates prescribed by the govt.

The current service tax rate is 15%, and this rate varies due to changes done in budget  announced every year. Service Tax is liable to be paid on any service rendered by any person in India if the revenue of the person providing the service is more than Rs. 10 Lakh p.a. This service tax is also levied on bloggers and freelancers as they also provide a form of Service.

It is pertinent to note here that Sale of Ad Space on a website is also a part of Service and Service Tax would also be levied on Sale of Ad Units on a Website/ Mobile device. From 1st July 2012 till 30th Sept 2014 – sale of ad space on a website/ mobile was specifically exempted from the levy of Service Tax as this was included in the negative list of services on which service tax is not applicable.

However, Budget 2014 brought in an amendment and now sale of Ad Unit on a Website/ Mobile would attract Service Tax @ 15% wef 1st June 2016. This Service Tax would be applicable on all kind of digital ads i.e. Direct Ad Sales, Google Adsense Ads, Ad Sales through Agents etc.

Service Tax Exemption

Service Tax is not levied in the following cases:-

  1. In case the Total Revenue/Turnover of the business is less than Rs. 10 Lakhs. This exemption is known as Small Scale Exemption.
  2. All Services which are exported out of India are also exempted from the levy of Service Tax. The Govt. has specified several rules for determination of whether a service provided is considered as Export or not.

Service Tax Rate

Service Tax is levied @15% on revenue whereas income tax which is levied on the total income. The difference between revenue and Income is explained with the help of the following equation:-

Revenue – Expenses = Income

So, if the total revenue (excl ad sales) during the year is more than Rs. 10 Lakh, you would be required to pay service tax to the govt.

Charging of Service Tax to the Client

Although service tax is payable by the person who is providing the service he can still charge it from your client. This can be explained with the help of the following example.

For eg: Mr. A provides some service to Mr. B for Rs. 50 Lakhs on which Service Tax is levied @ 15%. Now in this case, service tax of Rs. 7,50,000 is payable by Mr. A to the govt. However, Mr. A can charge this service tax amount of Rs.7,50,000 from Mr. B and then deposit this with the govt. Practically, Mr. B also won’t mind paying this extra Rs.7,50,000extra as he knows that this amount is not going into the pockets of Mr. A, and Mr. A would be depositing this amount with the govt.

This is how the whole service tax industry works wherein the person who is providing the services, charges the service tax amount from the person receiving the service. You may have also noticed in restaurants and at many places it is written – “Service Taxes extra”.

Service Tax extra basically means that the person receiving the service has to himself pay the service tax over and above the rates mentioned.

In case, you don’t charge Service Tax from your client, you would be required to pay this service tax amount from your own pocket. However, if your total net revenue during the year is less than Rs. 10 Lakhs, you won’t be required to pay this service tax at all.

 

 

Service Tax Registration, Payment and Return Filing

 

Just like PAN No. is issued to each individual for filing his Income Tax Return, similarly Service Tax No. is also issued to every person liable to pay Service Tax. Registration for service tax is a simple process and application for service tax can also be made online through the automated website of the Central Excise and Service Tax Department.

Different due dates have been prescribed by the Govt for the payment of service tax depending on the kind of registration (Individual/ Company).

Service Tax Return which is a statement of the revenue earned from different type of Services is also required to be filed on a half yearly basis every year in the month of October and April.

However, you are only required to apply for service tax registration and file service tax return only when the total net revenue during the year exceeds Rs. 9 Lakhs (excl ad sales). So, the important thing to remember here is that Service Tax is liable to be paid only when the revenue (excl ad sales) exceeds Rs. 10 Lakhs p.a. but is required to apply for service tax registration when the revenue exceeds Rs. 9 Lakhs p.a.

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