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A Brief History Why Service Tax? Progression of tax rate over the years Ready Reckoner - Services covered under the Service Tax Collection of Service Tax Computation of Service Tax Input Tax Credit Service Tax: Some Statistics and Budget Highlights
1 2 3 4 5 6 7 8 9
3 3 4 4-9 10 11 11 12 - 13 14 - 15
Challenges before the Service Tax Administration in India Future Growth Path and Future Course of Action ( Forms – ST 1, ST 2, ST – 3 and TR - 6 )
A Brief History
A tax is a financial charge or other levy imposed on an individual or a legal entity by the state. Based on how a taxpayer pays a tax, taxes are differentiated into direct taxes and indirect taxes. A direct tax is one paid directly to the government by the persons on whom it is imposed. Income Tax is an example of direct tax. An indirect tax is a tax collected by an intermediary from the person who bears the ultimate economic burden of the tax. Examples of indirect tax are Sales Tax, VAT, Service Tax, Customs Duty etc.
Why Service Tax?
In India, the economy consists of three sectors viz. agricultural sector, industrial sector and the services sector. At present the share of the three sectors are 18.5%, 26.4% and 55.1% of the GDP respectively. Service sector not only occupies the most significant part of the GDP but is also the fastest growing of all. In 2006-07, the rate of growth for these sectors was 2.7%, 7.4% and 11.1%. (Source: Economic Survey 2006-07 – Ministry of Finance, Govt. of India) In 1994, the then government headed by Prime Minister Mr. P.V.Narasimha Rao realized the significant contribution of services to the GDP and its potential growth in the future. Hence it decided to impose tax on services. Services have been taxed world over. However, the difference between many countries taxing services and India is that India has chosen a selective model of taxation whereas the other countries have adopted a comprehensive model of taxation. In the comprehensive model all the services are taxed except a few like medical services, education etc. In the selective model only a few selected services are taxed by a government notification and rest of the services are exempted. Initially only three services viz. telecommunication, general insurance and stockbroking were taxed. The rate of taxation was 5% of the amount of service provided.
Progression of tax rate over the years
Year 1994 2003 2004 2005 2007 Rate (%) 5 8 10 12 12 Educational Cess (%) 2 2 3 Effective Rate (%) 5 8 10.2 12.24 12.36
Service tax was introduced for the first time in the year1994 through the insertion of Chapter V in the Finance Act 1994. For ready reference, details of the service in chronological order of their introduction are given below:
SL.NO. 1994 1. 2. 3. 1996 4. 5. 6. 1997 7. 8. 9. 10. 11. 12. Custom house agent Steamer agent Air travel agent Mandap keeper Consulting Engineer Manpower recruitment or supply agency 4 15-6-1997 15-6-1997 15-6-1997 15-6-1997 15-6-1997 15-6-1997 Nature of service General Insurance Stock broking Telephone Date of introduction 1-7-1994 1-7-1994 1-7-1994
Advertising agency Courier Pager
1-11-1996 1-11-1996 1-11-1996
13. SL.NO. 1998 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 2000 25. 26. 2001 27.
Clearing & Forwarding Agent Nature of service
15-6-1997 Date of introduction
Architect Chartered Accountant Company Secretary Cost & Works Accountant Credit rating agency Interior decorator Management Consultant Market research agency Real estate agent Security agency Underwriter
16-10-1998 16-10-1998 16-10-1998 16-10-1998 16-10-1998 16-10-1998 16-10-1998 16-10-1998 16-10-1998 16-10-1998 16-10-1998
Rent-a-Cab Scheme operator Tour operator
Authorized service station (Motor car/Two-wheelers)
28. 29. 30. 31.
Banking & other Financial services Broadcasting Computer network Convention 5
16-7-2001 16-7-2001 16-7-2001 16-7-2001
32. 33. SL.NO. 34. 35. 36. 37. 38. 39. 40. 41. 2002 42. 43. 44. 45. 46. 47. 48. 49. 50. 51. 52. 2003
Facsimile Insurance Auxiliary(Genl. Insurance) Nature of service Leased circuit Photography Port Scientific & technical consultancy Sound recording Telegraph Telex Video production agency
16-7-2001 16-7-2001 Date of introduction 16-7-2001 16-7-2001 16-7-2001 16-7-2001 16-7-2001 16-7-2001 16-7-2001 16-7-2001
Beauty Treatment Cable Cargo handling Dry cleaning Event management Fashion designing Health and fitness Insurance Auxiliary(Life Insurance) Life Insurance Rail travel agent Storage and warehousing
16-8-2002 16-8-2002 16-8-2002 16-8-2002 16-8-2002 16-8-2002 16-8-2002 16-8-2002 16-8-2002 16-8-2002 16-8-2002
53. Authorized service station (Light motor vehicle) 6
54. Business auxiliary services 55. Commercial training or coaching SL.NO. Nature of service
1-7-2003 1-7-2003 Date of introduction 1-7-2003 1-7-2003 1-7-2003 1-7-2003 1-7-2003 1-7-2003 1-7-2003 1-7-2003
56. Erection, commissioning or installation 57. Foreign exchange broking 58. Franchise 59. Internet access 60. Maintenance or repair 61. Other Ports 62. Technical inspection & certification 63. Technical testing & analysis 2004 64. 65. 66. 67. 68. 69. 70. 71. 72. 73. 74. 75. 76. 2004 2005 7 Airport Business exhibition Commercial or Industrial construction Forward contract Intellectual property Opinion poll Outdoor caterer Pandal or Shamiana Contractor Programme Producer Survey & exploration of mineral Transport of goods by air Transport of goods by road Travel agent(other than by air travel Agent and rail travel agent)
10-9-2004 10-9-2004 10-9-2004 10-9-2004 10-9-2004 10-9-2004 10-9-2004 10-9-2004 10-9-2004 10-9-2004 10-9-2004 10-9-2004 10-9-
77. 78. SL.NO. 79. 80. 81. 82. 83. 84. 85. 2005 2006 86. 87. 2006 88. 89. 2006 90. 91. 92. 93. 94. 95. 96.
Cleaning activity Club or Association Nature of service Construction of Complex Dredging Mailing list compilation & Mailing Packaging activity Site formation and clearing, etc. Survey and map- making Transport of goods through pipeline or Other conduit
16-6-2005 16-6-2005 Date of introduction 16-6-2005 16-6-2005 16-6-2005 16-6-2005 16-6-2005 16-6-2005 16-6-
Auctioneer’s service Automated Teller Machines Operations, Maintenance or Management services Business support services Credit card, debit card, charge card or other Payment card related services Internet telephony service Public relations management service Recovery Agent’s service Registrar to an Issue’s service Sale of space or time for advertisement service Share transfer agent’s service Ship management service 8
1-5-2006 1-51-5-2006 1-51-5-2006 1-5-2006 1-5-2006 1-5-2006 1-5-2006 1-5-2006 1-5-2006
97. 98. 99. 2006 100. 2006 SL.NO.
Sponsorship service Transport of goods in containers by rail service Transport of passengers embarking in India for International journey by air service
1-5-2006 1-5-2006 1-5-
Transport of persons embarking from any port Or other port in India by cruise ship service Nature of service
Date of introduction
101 102 103 104 Telecommunication services Mining services Renting of Immovable Property for use in the Course or furtherance of business or commerce Services involved in the execution of works contract Development and supply of content service Asset management including portfolio management and all forms of fund management service Design services 28-02-2007 28-02-2007 28-02-2007 28-02-2007
105 106 107
28-02-2007 28-02-2007 28-02-2007
Collection of Service Tax
Collection of Service Tax is administered by the Customs & Excise Department. Following is the procedure foe collecting Service Tax:i. Any Service Provider providing service which is mentioned in the notification should get himself registered within 30 days from the date on which he starts providing the service. The application for registration is made in form ST-1. ii. iii. Registration Certificate is issued in form ST-2 within 7 days from the receipt of application. Once the certificate is issued the Service Provider is obliged to charge Service Tax. In case the Service Provider raises bill without charging the Service Tax, then he is liable to pay the Service Tax from his own pocket. iv. The Service Tax is payable only when the bill is realized and it is chargeable when the bill is raised. The Service Tax is required to be deposited using a challan in the form TR-6. v. The liability to pay Service Tax is dependant on whether the Service Provider is a company or non-company. In case the Service Provider is a company then the Service Tax collected in a month is to be paid before the 5th of the next month except for March when it is to be paid before 31st. In case the Service Provider is a not a company then the Service Tax is to be paid on a quarterly basis and the due date is 5th of the next month.
The Service Provider has to also file returns for the Service Tax collected and paid by him. Filing of returns takes place twice in a year. For the period April to September, the last date of filing returns is 25th October while for the period October to March; the last date is 25th April. The returns are filed in the form ST-3.
If there is a delay in the payment of Service Tax, a fine of 13% per annum is applied.
Computation of Service Tax
Service Tax = Amount of bill 100 + Rate of Service Tax Thus if the bill is of Rs. 1 Lac, then the Service Tax is computed as 100000 = 100 + 12.36 This is equal to Rs. 11000. * 12.36 * Rate of Service Tax
Input Tax Credit
The concept of Input Tax Credit was introduced to avoid cascading effect of paying Service Tax on Service Tax. It applies to all services under the Service Tax net provided there is some co-relation between the Service Tax on the input service and the output service. For e.g. suppose there is an event management firm. It is managing an event for which it charges Rs. 10 Lacs from the organizers. This firm hires the services of an 11
interior decorator who charges Rs. 1 Lac. At the effective rate of 12.36%, the interior decorator would raise a bill of Rs. 111000. The event management firm would raise a bill of Rs. 1110000, i.e. charging the organizers Rs. 110000. But while filing returns it will claim a credit for Rs. 11000 it paid to the interior decorator. Thus it would avoid paying Service Tax on Service Tax. At the same time, the government also does not lose any tax.
Service Tax: Some Statistics
Service Tax :
• • •
Tax to GDP ratio up 11.4 per cent in 2007-08. No change in Service Tax rate.
Service tax - Recommendations for the financial year 2007 - 08
* Exemption limit for small service providers to be raised from Rs400,000 to Rs800,000. * Extension of service tax to: Tax to be levied on services outsourced for mining of mineral, oil or gas and renting of immovable property for use in commerce or business (residential properties, vacant land used for agriculture and similar purposes and land for sports, entertainment and parking purposes and immovable property for educational or religious purposes to be excluded). * Service tax extended to content supplied for use in telecom and advertising purposes, 13
* Services involved in optional schemes of a works contract will be levied tax at only 2 contract * Exemption to: Tax exemption to services provided by resident welfare associations to their members who contribute Rs. 3,000 or less per month; Services provided by technology business incubators to incubatees whose annual turnover does not exceed Rs. 50 lakh (for three years); and clinical trial of new drugs. * Department of telecommunications to constitute a committee to study the present duty structure n telecom industry. The one per cent additional " Education Cess " on all taxes over and above the existing two per cent is uncalled for. So is the increase in the rate of dividend distribution tax by 2.5 per cent to 15 per cent. Large allocations are being made for agri sector year after year. But not enough is done to ensure effective utilisation of the funds. On the positive side is the reduction in customs duty on several items including coal and steel. Introduction of MAT on IT companies has come as surprise.
Challenges before the Service Tax Administration in India.
Service tax administration in India has before it multi-dimensional challenges. Few of them are related to the very nature and growth of service sector in the economy and others relate to procedural aspects of the service tax collection. The growth of service sector at higher rate offers opportunities as well as challenges to bring under the tax net hitherto uncovered services. 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 (Customs duty) and domestic manufacturing sector (Excise duty). So a planned growth of service tax would be commensurate with the goals of economic liberalization and globalization. This process requires levy of taxes on new services without substantial rise in the rate or cost of collection. The administration of service tax requires a separate comprehensive legislation along with distinct administrative machinery exclusively devoted to the collection of service tax. That alone would bring in greater clarity, streamlined procedures, greater 14
taxpayer assistance and a new tax culture of voluntary compliance. . The twin goal of revenue maximization introduction of the culture of voluntary tax compliance also throw up major challenge before the service tax administration in the country.
Future growth path for service tax in India.
Service tax is envisaged as the tax of the future. Well synchronized taxation on manufacturing, trade (domestic & international) and service without giving rise to cascading effect of taxation would be an ideal worth pursuing in the immediate future. This would bring in VAT in its truest sense. Continued growth in GDP accompanied by higher rate of growth in service sector promises new & wider avenues of taxation to the Government. If the tax on services reduces the degree of intensity of taxation on manufacturing and trade without forcing the Government to compromise on the revenue needs, then one of the basic objectives of taxing the service sector would be achieved. Voluntary tax compliance on the part of taxpayers demands prudent accounting practices and transparency in the conduct of their business. Marginal rates of taxation would be conducive in this process. Many new services may be brought under the tax net in future. The inclusion of all value added services in the tax net would yield larger amount of revenue and make the existing tax structure more elastic. Advanced economies of Western Europe, North America and Far East have share of service sector in their GDP ranging from 60% to 80%. The growth in absolute quantum of GDP and proportion of Service-sector in GDP holds promise for larger revenue generation without increasing the existing level of taxation
Future Course of Action
The following items of works have to be attended to urgently to improve the administration of Service Tax in the country. 15
Target of Service Tax collection for f.y. 2007-08 to be exceeded
2. Intensify the field survey operations to ensure that all taxable service assessees are brought into the tax net and Service Tax due from them are collected without hitch. 3. Action plan for the f.y. 2007-08 to be implemented and monitored by various levels of supervisory officers on a monthly basis.
4. The statutory change to prosecute frequent offenders/tax evaders is needed in the Act. 5. Design and implement an Electronic Tax Administration (ETA) system for service tax so that service tax could be administered as first e-tax of the country. 6. Attend to all major court cases relating to Service Tax law for early decision. Deploy adequate staff to attend to the service tax work and provide infrastructure and conveyance to implement service tax law effectively. VAT, CST and a Roadmap towards GST: Agreement reached with State Governments to phase out CST; rate to be reduced from 4% to 3% with effect from April 1, 2007; Rs.5,495 crore provided for compensation for losses, if any, on account of VAT and also on account of CST; a roadmap for introducing a national level Goods and Services Tax (GST) with effect from April 1, 2010 to be prepared.
FORM ST- 1 [Application form for registration under Section 69 of the Finance Act, 1994 (32 of 1994)] (Please tick appropriate box below)
Amendments to information declared by the existing Registrant. Registration Number in case of existing Registrant seeking Amendment _____________ 1. (a) Name of applicant
(b) Address of the applicant
Details of Permanent Account Number (PAN) of the applicant (a) Whether PAN has been issued by the Income Tax Department
Yes No (b) If Yes, the PAN
(c) Name of the applicant (as appearing in PAN)
(a) Constitution of applicant (Tick as applicable) (i) Proprietorship
(iii) Registered Public Limited Company
(iv) Registered Private Limited Company
(vi) Society/Cooperative society
(b) Name, Address and Phone Number of Proprietor/Partner/Director (i) Name
(iii) Phone Number
Category of Registrant (Please tick appropriate box)
(a) Person liable to pay service tax
(i) Service provider
(ii) Service recipient
(b) Other person/class of persons (i) Input service distributor
(ii) Any provider of taxable service whose aggregate value of taxable service in a financial year exceeds three lakh rupees
(a) Nature of Registration (Tick as applicable)
(i) Registration of a single premise
(ii) Centralized Registration for more than one premises (b) Address of Premises for which Registration is sought (i) Name of Premises / Building
(ii) Flat/Door/Block No.
(iv) Village / Area / Lane
(vi) Post office
(x) Telephone Nos.:
(xi) Fax No.
(c) In case of application for Centralized Registration, furnish address of all the premises from where taxable services are provided or intended to be provided (FORMAT AS PER 5(b) ABOVE)
(d) In case of application for Input Service Distributor, furnish address of all the premises to which credit of input services is distributed or intended to be distributed (FORMAT AS PER 5(b) ABOVE) 6. Address of the premises or office paying service tax under centralised billing or centralised accounting under sub-rule (2) and (3A) of rule 4 of the Service Tax Rules, 1994. Address
7. S.No. (1)
Description of taxable services provided or to be provided by applicant Description of service (2) Relevant clause of section 65 of the Finance Act, 1994, to be indicated, if possible (3)
Name, Designation and Address of the Authorized Signatory /Signatories: DECLARATION
I, ___________________________________________hereby declare that the information given in this application form is true, correct and complete in every respect and that I am authorized to sign on behalf of the Registrant. (a) For new Registration: I would like to receive the Registration Certificate by mail / by hand/ E-MAIL (b) For amendments to information pertaining to existing Registrant:
Date from which amendments are made: _______________ (Original existing Registration Certificate is required to be enclosed) (Signature of the applicant/authorized person with stamp) Date: Place: ACKNOWLEDGEMENT (To be given in the event Registration Certificate is not issued at the time of receipt of application for Registration) I hereby acknowledge the receipt of your Application Form (a) For new Registration (As desired, the New Registration Certificate will be sent by E-MAIL/ mail/handed over to you in person on______________) (b) For amendments to information in existing Registration receipt of original existing Registration Certificate) (I hereby acknowledge
Signature of the Officer of (with Name & Official Seal) Date: FORM ST-2
[Certificate of registration under Section 69 of The Finance Act, 1994 (32 of 1994)] Shri/Ms. ………………………………………………. (name with complete address of premises ) having undertaken to comply with the conditions prescribed in Chapter V of the Finance Act, 1994 read with the Service Tax Rules, 1994, and any orders issued thereunder is hereby certified to have been registered with the Central Excise Department. The Service Tax Code and other details are mentioned hereunder. 1. PAN No.
Service Tax Code (Registration Number)
Taxable Services Address of business premises:
Name of Premises / Building
(ii) Flat/Door/Block No.
(iv) Village / Area / Lane
(vi) Post office
Telephone Nos: X
(x) E-mail Address
5. PREMISES CODE
[SL.NOS.2,3,4 TO BE REPEATED FOR EVERY PREMISES BEING GRANTED A REGISTRATION UNDER THIS CERTIFICATE. PREMISES CODE IS GIVEN BY THE
DEPARTMENT BASED ON THE COMMISSIONERATE+DIVISION+ RANGE+ SL NO]
Note: 1. In case the registrant starts providing any other taxable service (other than those mentioned above), he shall intimate the department. 2. In case the registrant starts billing from other premises (other than those mentioned above), he shall intimate the department. These intimations and any other information which registrant wishes to bring to the notice of the department can be submitted on-line by the registrant after logging on to web-site. This registration certificate is not transferable. List of Accounting Codes is enclosed. These may invariably be furnished in the challan at the time of making payment of service tax. Name and signature of the Central Excise Officer with official seal
Date: ……………. CC: (by e-mail) To(1) The Pay and Accounts Officer (Commissionerate Name)
(2) The Superintendent of Central Excise (Where premises are located).
FORM ST-3 (Return under Section 70 of the Finance Act, 1994) FINANCIAL YEAR____________
For the period:
(Please tick appropriate box)
Name of the assessee
Registration Numbers of premises for which return is being filed
Category of taxable services for which return is being filed: (Mention all the taxable services provided/received) (1)________________________________ (2)________________________________ (3)________________________________
4. Payment of Service Tax Category of Service: __________________________________________________ (A) Payment details Apr/Oct May/Nov June/Dec July/Jan Aug/Feb Sept/Mar Total of column (2) to (7) (8)
(1) Amount received towards taxable service(s) provided Amount
received in advance towards taxable service(s) to be provided Amount Billedgross Amount billed for exempted services other than export Amount billed for exported services, without payment of tax Amount billed for services on which tax is to be paid Abatement claimedValue Notification number of Abatement Notification number of exemption Provisional Assessment order no. Service tax payable Education cess payable Service tax paid in cash Challan Number Challan date Service tax paid through cenvat
credit Education cess paid in cash Education cess paid through education cess credit (To be repeated for every category of service provided /received, and for every registered premises separately)
(B) Details of other payments AmountCash (2) Challan Number (3) Date (4) Amount-Credit (5) Source Document No (6)
(1) Arrear of service tax
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