Service Tax

Service Tax is an indirect tax levied on taxable services; where the obligation/ liability is of the service provider to collect and deposit service tax.

History

In 1994, Service Tax was introduced in India by the then Finance Minister Dr. Manmohan Singh – who envisioned services as being a whole new sector from which tax can be collected to increase Government revenue.

At the time India needed revenue and new sources for revenue generation were being sought. Thus, finally on the recommendations of Dr. Raja Chelliah Committee on tax reforms -Service tax was been first levied at a rate of five per cent flat on 15 July 1994.

Previously until July 2012, we had the selected service approach for taxing services – i.e., only those services shall be taxed which were mentioned specifically in the list.

From July 2012 onwards, India has adopted the ‘Negative List’ system – whereby all services are taxable, except those mentioned in the Negative List. The Negative List concept was introduced during Finance Minister Pranab Ray’s regime.

How to calculate Serviec Tax

Okay just to simply a whole lot of pages worth theories, here’s a numerical example:

If say, you provide the service of preparing food and selling them in containers to office goers – if such a tiffin service is taxable – then you as the service provider are liable to pay service tax.

How will you pay the service tax? – you will collect the service tax amount, at the prescribed rate, from the service receivers by adding it to the bill amount and then pay the service tax amount so collected into the credit of the government.

So, you the service provider collects Rs. 11,236 from your customer – you keep your Rs. 10,000 for yourself (your income) and deposit Rs. 1,236 into the Government’s account as service tax collected.

Service providers collect service tax from every customer, per bill, and deposit them monthly/ quaterly.

Thus, you can see the incidence of the service tax is actually on us – the service receivers.

So, now you know when you go to a restaurant you end up paying a lot more than what you had ordered!!