IT Project
IT Project
IT Project
DECLARATION
I hereby declare that the project entitled Evaluation of Service Tax in India
submitted to Institute of Excellence in Higher Education, is record of
original work done by me under the guidance of ___Jagha Chorna Kya ke
Teacher Ka naam Ajaye __ (Department of commerce).
Any inferences, research or similarity is purely coincidental.
Acknowledgement
I would like to take this opportunity to thank Dr. M.L. Nath (Director, Institute
for Excellence in Higher Education, Bhopal), Dr. S.S. Vijayvargiya (Head of
commerce department) and ___Jagha Chorna Kya ke Teacher Ka naam
Ajaye __ (Teacher guide) to have provided me with such a great opportunity to
work on this Indirect Tax project.
Last, but not the least, I would like to thank my family, friends and all those
who helped me in some way or the others in the successful completion of this
research project.
Faizan Khan
B.com III year
Accounts Honors Section B
Roll No. 113113
Service Tax
Budget 2015 Update: Finance Minister while presenting the Budget 2015 has
increased the Service Tax Rate from 12.36% to flat 14%. This new rate of Service
Tax @ 14% is applicable from 1st June 2015.
The rate of Service Tax for services provided before 1st June is 12.36% and for
services provided after 1st June is 14%. The Notification can be downloaded from
here Notification No. 14/2015 for applicability of Service Tax @ 14% from 1st
June.
If the Invoice is raised in the month of May 2015 for Services to be provided in
June 2015 Rule 4(b) of Point of Taxation Rules will apply and the rate of service
tax applicable would be the date on which the payment is being made. For more
on this kindly refer: Rate of Service Tax if invoice raised in May 2015 for services
to be provided in June 2015
The meaning and applicability of Service Tax has been explained below in simple
words for Beginners
When we use any service be it a phone bill payment or Hire a room in a hotel we
have to pay out little more than the actual rates charged. Ever wondered why?
The reason is very meek, we are made to pay service tax over and above the
usual charge but the bigger question is What is Service Tax, why do we have to
pay this Tax when the tax is applicable on the company providing the service and
also what is the Service Tax Rate. If these questions bother you, find answers
below.
What is Service Tax?
It is a tax which is payable on services provided by the service provider. Just like
Excise duty is payable on goods which are manufactured, similarly Service Tax is
payable on Services provided.
This Tax is payable by the provider of Service to the Govt. of India. However, the
Service Provider can collect this Tax from the Consumer of Service (also referred
to as Recipient of Service) and deposit the same with the Govt.
Applicability of Service Tax
This tax came into effect in 1994 and was introduced by the then Finance
Minister Dr. Manmohan Singh.
Earlier Service Tax was payable only on a specified list of services but Pranab
Mukherjee while delivering his budget speech on 16th March 2012 announced
that this Tax would be applicable on all services except the negative list of
services. From 1st July 2012 onwards, all services (except those specified in the
negative list of services by the Govt) are now liable for service tax.
However, there are some services which are composite services. For eg: Food
being served in a Restaurant. Although VAT is levied on Food, but we dont go to
a Restaurant only to have Food but also to avail the services of the waiters,
kitchen staff etc. Therefore, Service Tax is also levied on Food served in
Restaurant. In such cases, it is practically impossible to segregate how much the
customer has paid for the food and how much he has paid for the services.
Such services are popularly known as Composite Services and in such cases an
abatement scheme is announced by the govt under which Service Tax is only
levied only on a specified portion of the Total Bill.
Service Tax on Cash Basis
Earlier Service Tax was charged on cash basis for every service provider.
Currently, it is charged on cash basis for Individual service providers and for
companies it is being charged on accrual basis i.e companies liability to deposit
tax arises as soon as services are provided irrespective of the collection of funds
on the same.
However Individual Service Providers have to deposit this Tax with the Govt only
when the Invoice Amount has been collected. Service Tax Payment is deposited
by the Service Provider with the Govt. quarterly in case of Individuals/Partnership
and Monthly in all other cases.
Moreover, every Service Provider is now required to apply for Service Tax
Registration if the Value of Services provided by him during a Financial Year is
more than Rs. 9 Lakhs, but the Tax would be payable only when the Value of
Services provided is more than Rs. 10 Lakhs.
All service providers in India, except those in the state of Jammu and Kashmir,
are required to pay this tax in India. Service Tax is not levied on the persons
residing in Jammu & Kashmir.
optional on the part of the Restaurant and they are free to charge any amount as
Service Charge after making proper disclosures in the Menu Card. In other words,
Service Charge is a Mandatory Tip to be paid, if proper disclosures for the same
are shown in the Menu Card.
Different Restaurants levy different Service Charges although it is normally in the
range of 5% to 10%. Some Restaurants levy Service Charge only for dine-in
customers and not for Takeaway or Home-Delivery Customers. Levying service
Charge is entirely at the sole discretion of the Restaurant Owner and they are
free to levy any amount as Service Charge.
2. VAT: VAT is Value Added Tax levied on the sale of any item. As food is being
sold in a restaurant, VAT is liable to be paid on such sale. VAT is levied by the
State Govt and is at the sole discretion of the State Govt. Different States
prescribe different rates of VAT. Moreover, even in the same state, different
Rates of VAT have been prescribed for different items. The Rate of VAT is
different for Alcoholic Beverages and different for other food items.
3. Service Tax: When you go to a Restaurant, you not only go there to eat food
but also avail of various amenities and hospitality services. The Cost of Food as
shown in the Menu Card is a composite charge and includes not only charges for
the Cost of Raw Material but also for the Cost of the Services rendered. And as
these Services are being rendered, the Centre Govt collects Service Tax on the
Services rendered.
Although Restaurants nowadays are collecting Service Charges separately, but
that is not enough to cover the Cost of Services provided and therefore, a portion
of the Cost of Services is also included in the Cost per Dish.
Applicability of Service Tax on Food in Restaurants
We dont always go in a restaurant for both Food + Services. Many a times,
people go in a small nearby restaurant not for the services provided but only for
the food. In such cases, Service Tax wont be leviable.
To distinguish between whether a customer is going to a restaurant only for the
Food or for both Food + Services, the Govt has announced the following
conditions for the levy of Service Tax in a Restaurant:1. The Restaurant should be Air Conditioned,
Earlier the Conditions were that the Restaurant should be Air Conditioned +
Restaurant should have license to serve liqour. However, in the Budget 2013, P.
Chidambaram removed the 2nd condition and now Service Tax would be levied
on all Restaurants which are air conditioned.
In Budget 2013, P.Chidambaram also announced that Service Tax would also be
levied on under-construction property where area of the property is more than
2000 sq ft.
Some people have confused Service Tax on Restaurants with Service Tax on
under-construction property and think that Service Tax on Restaurants is levied
only when the Restaurant is air-conditioned and is more than 2000 sq ft.
However, this interpretation is completely wrong and Service Tax is levied on all
air-conditioned restaurants.
Service Tax on Food Served in Restaurants
The Charges for the Food served in a Restaurant is a composite charge for the
food as well as for the Services. As it is a composite charge, Service Tax cannot
be levied on the whole amount.
Bifurcation of the Total Bill into 2 parts i.e. Value of Goods Sold and Value of
Services Provided is very difficult. Therefore, in case of any Composite Charge,
the Govt usually announces an abatement scheme wherein Taxes are not levied
on the total amount but only on a certain portion of the total amount.
In order to ensure transparency and standardisation in the manner of
determination of the value of such service provided in a restaurant or as outdoor
catering, Rule 2C was inserted in the Service Tax (Determination of Value Rules)
As per this Rule, abatement has been allowed for the levy of Service Tax on the
Food Served in Restaurants, which says that Service Tax should be charged only
on 40% of the Food Bill (incl Service Charge) and not on the Total Bill.
Or in other words only 5.6% Service Tax on Restaurant (i.e. 40% of 14%) shall be
chargeable. The Computation of Service Tax has been explained below with the
help of an example. For the purpose of simplification, VAT has been presumed at
14.50% on the Total Food Bill.
However, in case the food is not being served in a restaurant and is being served
as part of outdoor catering, service tax should be levied on 60% of the Total Bill.
The Finance Ministry has also issued a circular on levy of service tax in some
special circumstances
15,00,000
2.10,000
17,10,000
This is the manner in which the Service Tax would be levied. The manner of
computation of Service Tax is required to be specifically disclosed in the Invoice.
This Service Tax (i.e. Rs. 2,10,000) is to be collected from the Company whose
product has been advertised and is required to be paid with the Govt. However,
in case this Service Tax is not collected from the Advertiser, the Service provider
will have to pay this from their own pocket.
All Service Providers on whom Service Tax is now applicable would also be
required to apply for a Service Tax No. and comply with all Service Tax Rules.
Once a Service Provider applies for Service Tax Registration No., he would also be
required to file Service Tax Return after every 6 months.
Exemption from Service Tax
1. Service Tax is to be collected by all Service Providers. However, if the
Combined Total Value of Advertisements received during the year from all
the Advertisers (combined) is less than Rs. 10 Lakhs, Service Tax is
exempted for such small Service Providers.
2. If Services are being exported outside India, No Service Tax would be
levied in case of Export of Services as well.
Service Tax would be levied on Rent in all other cases. The Service Tax on Rent collected by
the Service Provider from the Service Recipient is required to be deposited with the Central
Govt before the Due Date of Payment of Service Tax.
Computation of Service Tax on Rent
The Ministry of Finance vide Notification No. 29/2012 Service Tax dated 20 th June
2012, announced that Service Tax is to be levied on the
Gross Amount charged for renting of such immovable property
(Less) Taxes on Such Property namely property tax levied and collected by
Local Authorities
However, any amount such as Interest, Penalty paid to the Local Authority by the
Service Provider on account of delayed payment of Property Tax or for any other
reason shall not be treated as Property Tax for the purpose of deduction from the
Gross Amount Charged.
Computation of Service Tax on Rent can be explained with the help of the
following example
Rent Received for the Year:
Property Tax paid for the Year:
Rs. 25 Lakhs
Rs. 1 Lakh
Rs. 24 Lakhs
Service Tax on Rent as per the rates in force would be payable on the above Rs.
24 Lakhs. The Rate of Service Tax applicable from 1st June 2015 is 14%
Tax would be levied from 1st June 2015 onwards at the rates mentioned
below:In case of Domestic Bookings
Abatement
allowed
Taxable
Portion
1. Services by a
Tour Operator in
relation to a
Package Tour
2. Services by a
Tour Operator in
relation to a Tour,
if the Tour
Operator is
providing
Services solely of
arranging or
booking
accommodation
for any person
3. Service
provided by a
Tour Operator
other than the 2
types of Services
specified above.
75%
25%
Effective Rate
of Service Tax
(incl. Cess)
3.50%
90%
10%
1.40%
60%
40%
5.6%
When the Service Tax on under construction property was first levied, many Real
Estate Developers and Builders had appealed to the Courts against the
applicability of Service Tax on Under Construction Property and the Court had
also issued a Stay Order for the same. But, the Courts eventually decided in the
favour of the Govt. as a result of which Service Tax on under Construction
Property is now liable to be paid.
To remove confusions created by the Court Orders, the Govt while introducing
the Negative List of Services (applicable from 1 st July 2012), has very specifically
in the definition of Service contained in Clause (44) of Section 65B of the Act
stated that Service includes Declared Service. The Govt. has also mentioned the
activities which would be considered as Declared Services and Construction of
Complex, Building, Civil Structure or part thereof has been stated as a Declared
Service.
In the light of the above, Service Tax on Construction is liable to be paid as per
the Service Tax Rates in force.
Exemption from Payment of Service Tax on Construction
The Ministry of Finance on 20th June 2012 issued a Mega Notification pertaining to
exemption from applicability of Service Tax on many activities. As per this
Notification No. 25/2012-Service Tax dated 20th June 2012, Exemption from
Service Tax on Under Construction Property is available in circumstances
pertaining to services provided in the following cases:1. Construction of a Single Residential Unit*
2. Construction of Low Cost Houses upto a carpet area of 60 sq. metres per
house in a housing project approved by competent authority empowered
under the Scheme of Affordable Housing in Partnership framed by the
Ministry of Housing and Urban Poverty Alleviation by the Govt. of India
*Please Note: Single Residential Unit has been defined as a self contained
residential unit designed for use of a single family. If the house/complex has
multiple floors/units and the title of each of the units/floors is capable of being
transferred to another person by Mutation in land/municipal records, all the
floors/units would be considered as separate single residential units and Service
Tax on Construction would be levied on the same.
Service Tax on Under Constuction Property would be levied on all other cases
except the ones which have been mentioned above. The Computation of Service
Tax on Under Construction property has been explained below.
Computation of Service Tax on Under Construction Property
At the time of sale of property, the amount paid by the purchaser to the Builder
is for:1. Value of Land
2. Construction Service provided by the Builder/Developer
Service Tax can only be levied on Services and not on sale of goods/immovable
property & therefore in the above case Service Tax wont be levied on the Value
of Land and would only be levied on the Construction Service provided by the
Abateme Taxable
Normal Rate Effective Rate of
nt
Compone of
Service Tax on
Allowed nt
Service Tax Property
70%
30%
14%
4.20%
70%
30%
14%
4.20%
75%
25%
14%
3.50%
The Ministry of Finance vide Notification No. 9/2013 has re-confirmed that the
above abatement provided for payment of service tax on property would can be
availed by the builder only if:1. Cenvat Credit on inputs used for providing the service has not been
availed
2. Total amount charged includes the value of land and the value of land is
not shown separately in the invoice.
The Service Tax so collected by the Builders/Real Estate Developers does not go
in their pockets and is deposited with the Govt. by the person collecting the
same before the due date of payment of Service Tax.
Bibliography
Books
1. Indirect Tax by VP Agarwal
Websites
1. www.taxguru.in
2. www.charteredclub.com