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CreditMantri Finserve Private Limited Unit No. B2, No 769, Phase-1, Lower Ground Floor, Spencer Plaza, Anna Salai, Chennai - 600002
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Service tax is an indirect tax which is imposed by the government on certain service providers but is borne by the customers. The service tax was introduced under the Finance Act 1994. Service tax was earlier levied on a specified list of services in the country. In 2012, the scope of these services expanded and a lot of new services were added to the list of taxable services.
Service tax is applicable to individual service providers on a cash basis and to companies on an accrual basis. The service tax exemption limit for a financial year for any assessee is Rs. 10 lakhs. The change in service tax rate is after subsuming the secondary and the higher - secondary education cess. The service tax has now come under the purview of the Goods and Service Tax(GST) with effect from 1st July 2017.
Almost all organizations which are service providers are liable to service tax. But there are certain exemptions to the above
For transactions that occurred before the date of 1st June 2015, the rate of service tax applicable was 12.36%. On 1st June 2015, the rate was increased to 14%. After 15th November 2015, the Swachh Bharat Cess was applicable and the rate of tax increased from 14 to 14.5%. The Swachh Bharat Cess was 0.5%. On 1st June 2016, the rate was again increased to 15%. The government introduced another tax known as the krishi kalyan cess which is 0.5%. So, the rate of service tax is now 15%.
The rate can be broken down into 3 parts
The basic rate 14%
Swachha Bharat cess 0.5%
Krishi Kalyan cess 0.5%
Let us take an example to understand how the application of service tax takes place
If person N is providing consultancy services to a firm for a value of Rs. 1 lakh. It is assumed that N is acquired through effective management practice , it is therefore categorized as a service which is offered to the firm. With Swachha Bharat cess and Krishi Kalyan cess, the amount of fee comes to Rs. 1,15,000. The total amount of service is Rs. 1,00,00 and the taxes are RS. 15,000.
In the above case, no service tax has been charged on the invoice or the firm makes partial payment to the consultant then the tax would be proportionally calculated on the gross amount received by N for the service provided.
When the taxable service has been provided | Invoice has been issued | Payment received for invoice | Point of taxation will be | Applicable Rate |
Before change in effective rate of tax | After the change in rate of tax | After change in rate of tax | Date of issue of invoice or date of receipt or date of payment whichever is earlier | New rate |
Before change in rate of tax | After change in rate of tax | Date of issue of invoice | Old rate | |
After the change in rate of tax | Before the change in rate of tax | Date of receipt of payment | Old rate | |
After the change in effective rate of tax | Before the change in rate of tax | After the change in rate of tax | Date of receipt of payment | New rate |
Before the change in rate of tax | Before the change in rate | Date of issuance of invoice or date of receipt or date of payment whichever is earlier | Old rate | |
After the change in rate of tax | Before the change in rate of rate | Date of issue of invoice | New rate |
1. What is the applicable rate of service tax?
2. Is service tax a direct tax?
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