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Service Tax

Service sector in India has witnessed incredible growth in recent decades. Recognising the sector’s potential, Indian government embarked on taxing services from 1994 with barely three services initially only to be expanded to 100 plus services till 30th June 2012. From 1st July, 2012, in an effort towards introduction of a comprehensive GST, new Service Tax Regime based on Negative List has been introduced.

There was a positive list of services which alone were taxable till 30th June, 2012. From 1st July, 2012, India has moved to comprehensive system of taxing services. Statutory provisions are replete with definitions relating to negative list, declared list and other issues to provide for activities not liable to Service Tax, activities declared as services and hence, liable to service tax and the persons who are liable. Generally, service providers are required to comply with service tax law but in certain situations, the responsibility is cast on the recipient of service.

Compliance under service tax law begins with registration. A small threshold limit of Rs. 10 lakhs (2012-13) has been provided which means service providers having lesser turnover are not required to pay service tax. But, a different threshold of Rs. 9 lakhs has been provided for registration. Once the value of taxable service(s) provided or received (in certain cases) crosses Rs. 9 lakhs, registration is required. 

Service tax is payable on value of the taxable service which refers to gross amount received for services provided. There are alternative rates of service tax for certain services besides specific inclusions and exclusions from taxable value. Exemption from service tax is available for certain services while for certain other, exemption is provided by way of excluding a part of the taxable value.

A tax credit scheme nomenclatured as Cenvat Credit Scheme is available for service providers and also to manufacturers who provide or receive taxable services. Service tax paid on input services can be taken as credit and used to offset service tax liability on output services. The mechanism works across goods and services – one can use credit of excise duty to pay service tax and a manufacturer can pay excise duty from his service tax credit.

Service tax law includes provisions to demand any non-paid or short-paid tax. It also refunds excess tax paid but on following set procedures and conditions. Grievances and disputes can be settled internally at the initial stage by certain processes which extend to tribunal and courts at subsequent levels.

India is getting ready to welcome the grand reform of introduction of an integrated and seamless system of Goods and Services Tax (GST) in the place of Central and State levies prevalent now.