Service Tax (Chapter V of Finance Act, 1994)

What is Service Tax?

Service Tax is an indirect tax that is imposed by the Indian government on service providers on specific service transactions, however, it is paid by the consumers. It is an indirect tax and was defined in the Finance Act of 1994.

The service tax was established in the year 1994 through the Union budget and implemented on July 1, 1994, for the first time in India. A/C restaurants, hotels of all types, guest homes, and other facilities are covered in service tax for their services. According to the regulations of the service tax act, the tax was levied on all types of service providers( some exceptions are there). However, service tax is required to be paid only if the value of the service provider crosses the amount of 10 lakh. The service provider pays the tax and collects it from the client in this situation. The Service Tax was formerly charged on a limited list of services, but its scope was expanded in the 2012 budget.

In return for various services acquired from service providers, service tax was paid to the government. Although service providers paid the tax, it was recovered from consumers who purchased or used the taxable services. At present, the rate for this is at 15% for transactions that took place on or after June 1, 2016. Individual service providers are charged on a cash basis, whereas businesses are charged on an accrual basis. Only when the value of services delivered in a  year exceeds Rs 10 lakh is this tax due. The state of Jammu and Kashmir is exempt from this tax.

India’s Service Tax Rate

The rate of India’s service tax mentioned in the service tax act 1994 is subject to change at any moment. During the fiscal budget session, the government revises the rates. During the budget session of the parliament, the finance minister usually announces modifications to the service tax rates. The finance minister said in 2015 that the service tax rate will be raised from 12.36 percent to 14 percent. This rate was reintroduced in 2016 and raised to 15%, which includes a 0.5 percent “Swachh Bharat” cess and a 0.5 percent “Krishi Kalyan” cess.

Penalties to be paid for failure to pay Service Tax

All the penalties and duties are mentioned in the Finance Act, 1994 and these are the following penalties as mentioned in chapter V of the finance act, 1994

•  Not paying or paying late service tax results in a penalty cost.

• If a person does not file ST-3 Return (according to section 70 of finance act) by October 25th and April 25th of each year, then the person is liable to pay the fine. In such an instance, a person would be subject to a penalty cost of up to Rs.2000, according to the delayed date.

• If a person produces an improper invoice or fails to substantiate their invoice with appropriate data, a penalty of up to Rs.5000 would be levied.

• If a person is a service provider and and unable to do register his service, then he is liable to pay the fine under section 77 of chapter V of the Finance Act, 1994, which is upto Rs.5000. Because registration acts as an assessor’s identification, it is required to register your services.

• If a person fails to provide information or appear before a Central Excise Officer when required, he or she will be fined up to Rs.5000 or Rs.200 each day beyond the due date, whichever is more.

• If an assessee fails to maintain the account and other documents required by service tax legislation, then he is liable for a penalty of up to Rs.5000.

• If a person fails to pay their taxes online, they would be subject to a penalty of up to Rs.5000.

• If an individual concealed the revenue of his business and filed a fake report regarding the earnings intentionally, then he would be liable for the fine.

The above mentioned are the grounds for those who do not pay the service tax or try to conceal something about business, but section 80 of the finance act gives relief to those who have reasonable grounds for not paying the tax, they might get relief.

Conclusion

Every government needs a huge amount of money to operate the country and for this, they mostly depend on taxes that taxpayers pay, and from revenue, the government imposes different types of taxes, some direct and some indirect, and service tax comes under the indirect form of tax. In 2021-22 the Indian government earned 44.37% of total revenue through taxes.