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Published by Mansi Mangal

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Published by: Mansi Mangal on Jan 10, 2012
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SERVICE TAX Services constitute a very heterogeneous spectrum of economic activities.

Service sector now occupies the centre stage of the economy. With the increasing role of service sector and its contribution to GDP, the Government felt that this sector should not go untaxed. This offers tremendous revenue potential to the Government. It is expected that in due course, service tax would reduce the tax burden on international trade and domestic manufacturing sector. This process requires levy of taxes on new services, without substantial rise in the rate or cost of collection. Indirect tax :It is the source of revenue for the Government in the form of indirect taxes. No separate Act :There is no separate act for taxing the services. Central government has the power to make rules to carry out the provisions of the Act.

Uniform rate :There is a uniform rate of tax on all services. Currently, it is 10.3 percent {i.e., 10 % service tax + 2% EC + 1% SHEC} No double taxation :Services falling under two or more sub clauses cannot be taxed twice if the service is provided only once. BASIS OF CHARGE OF SERVICE TAX The rate of service tax is applied on the value of taxable services provided or to be provided. Currently the rate of service tax is 10.3 percent {i.e., 10 % service tax + 2 % of the service as education cess + 1 % of service tax as secondary & higher education cess}. The cess paid on input services is allowed as credit for payment of cess on output services VALUATION OF TAXABLE SERVICES Value of Taxable = Service  Gross amount charged x 100 ---------------------------------100 + Rate of service tax The Gross amount is value of taxable service plus service tax payable.

HOW SERVICE TAX IS PAID Credit for input services. Registration requirements. Tax to be paid on amounts actually received. No service tax on free services. Service tax on payments received in advance. Manner of payment of service tax.

while a corporate sports car is only partly deductible) over their useful lives by using percentage rates based on the class of asset they belong to. Income taxation can be progressive. Earnings are generally considered gross revenue minus expenses. and often allow notional reductions of income (such as a reduction based on number of children supported). proportional. Tax transparency. Stable source of revenue INCOME TAX € An income tax is a tax levied on the income of individuals or businesses (corporations or other legal entities).Adjustment of service tax. expenses. Various income tax systems exist. Various systems define income differently. it is often called a corporate tax. Better compliance through self policing. Corporate expenses related to capital expenditures are usually deducted in full (for example. Credit for input taxation leading to cost efficiency. NEED FOR INTRODUCING VAT VAT is more equitable way of taxing as all dealers share the tax burden. Simpler easy computation and easy compliance. while corporate income taxes often tax net income (the difference between gross receipts. with varying degrees of tax incidence. trucks are fully deductible in the Canadian tax system. or regressive. When the tax is levied on the income of companies. . Prevents cascading effect by providing input rebate. VALUE ADDED TAX € VAT is based on value addition to the goods. Tax evasion will be reduced. MERITS OF VAT Eliminates multiple tax. Lowering tax burden. and the related VAT liability of the dealer is calculated by deducting input tax credit from tax collected on sales during the payment period. With introduction of VAT. and additional write-offs). corporate income tax. Individual income taxes often tax the total income of the individual (with some deductions permitted). This input tax credit in relation to any period means setting off the amount of input tax registered dealer against the amount of his output tax. Uniformity. other taxes will be abolished. CORPORATE TAX € Corporate tax refers to a direct tax levied on the profits made by companies or associations and often includes capital gains of a company. Higher tax revenue. or profit tax.

ENTERTAINMENT TAX € In India. PROPERTY TAX € A property tax (or millage tax) levy on the value of property. etc. improvements to land (immovable man-made objects. also known as withholding. and tax is assessed in proportion to that value. Historically. Forms of property tax used vary between countries and jurisdictions.PAYROLL TAX € A payroll tax generally refers to two kinds of taxes: employee and employer payroll taxes. movie tickets. it is being subjected to tax by the Union and the State governments both. various entertainment tax acts of the state governments permit the rate of tax beyond100%. This article also provides that in case of conflict between the powers of Union and the States. Employee payroll taxes are taxes which employers are required to withhold from employees' pay. the state requires and/or performs an appraisal of the monetary value of each property. These withholdings contribute to the payment of an employee's personal income tax obligation. Since. such as buildings). if the payments exceed this obligation. € . Thus. the employee may be eligible for a tax refund or carry forward to future periods. Pay TV Services. Under a property tax system. an ad valorem tax that the owner is required to pay. and personal property (movable man-made objects). There are three species or types of property: land. Property tax can be defined as a "tax imposed by municipalities upon owners of real property within their jurisdiction based on the value of such property. Real property (also called real estate or realty) means the combination of land and improvements. that it can not be separated from the whole transaction. The component of entertainment is intrinsicially intertwined in the transaction of service. Entertainment falls in List 2 of the Seventh Schedule of the Constitution of India and is exclusively reserved as a revenue source for the state governments. large commercial shows and large private festival celebrations may incur an entertainment tax. before India acquired independence British government imposed heavy taxes on the events of amusements and entertainment. old enactments continued and there has been no revision or repeal of these acts. pay-as-you-earn (PAYE) or pay-as-you-go (PAYG) tax. where a large gathering of Indians could have caused rebellion or mutiny. After independence. This source of revenue has grown with the advent of Pay Television Services in India. DTH Services. Given the nature of transaction of service. The fiscal principle underlying article 246 of the constitution of India separates the sources of taxation for the Union and the States and also maintains the exclusivity. entertainment is being provided through the services such as Broadcasting Services. the Union power to tax shall supersede the power of the State to levy tax on the taxable event or in relation to the subject or object of taxation. Cable Services.

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