The Service Tax Rules, 1994 govern who is required to pay service tax. This could be a service supplier, a service receiver, or anybody else. It is an effective tax in which the provider receives and pays the tax for services out of service to the Indian government. Few systems are usually exempt in the public interest under Mega Exemption Announcement 25/2012-ST as revised, while a few services are paid service tax at a reduced rate under Notifications No. 26/2012-ST as amended. The service rate of tax was 15% on Jun 1, 2016.

The implementation of a service tax was advocated by the Dr. Raja Chelliah Committee for Tax Reforms. Just on services range of support, service tax was first collected at a flat rate of 5% from 1 July 1994 to 13 May 2003, and then at a rate of 8% flat w.e.f 1 plus additional education cess of 2% w.e.f 10 September 2004. Finance Act, 2006 increased the services tax rate to 12% with effect from April 18, 2006. With effect from 11.5.2007, the Finance Act of 2007 placed a new 1% school and tertiary cess on the service tax, bringing the overall education cess to 3% and the total charge to 12.36 percent.

Finance Act of 1994 

In India, the Service Tax was enacted in 1994. There is no separate law that governs the collection of Service Tax.

Scope 

The Service Tax Act regulates the taxation of services, which includes the following:

  1. Any behaviour that should be considered
  2. Contains a stated service and is carried by an individual for another.
  3. Service Tax is a tax that is levied on goods and services.

Levy of Service Tax

Except for Jammu and Kashmir, the service tax is imposed over the entire country. 

Service Evaluation

  1. There is no tax on effort without thought, and there is no tax on consideration without activity.
  2. An activity must be performed by one person for the benefit of another. The phrase “undertaken by a person to another” implies that there would be two separate entities: the provider and the services receiver.
  3. Service comprises a stated service, which is defined as any activity performed for the benefit of another person as well as stated as such per section 66E. (section 65E). 

Payment of Service Tax 

The Services Tax is calculated on the amount of taxed services provided by the assessee. The charged amount includes any taxable income deducted. As a result, Service Tax must be paid upon that income tax paid at source as well. 

Types of Tax 

  • Direct Tax 
  • Indirect Tax 

Direct Tax 

Indirect Tax 

It is based on the amount of money earned and the actions that are carried out.

It is a tax that is imposed on a service or product.

In the event of direct tax, the tax burden cannot be moved.

The weight of indirect taxes has changed.

It is fully paid by the person in question.

It is paid through one person, but he recovers it from another, i.e. the person who is the final consumer of the tax.

It is paid once the revenue reaches the taxpayer’s hand.

It is paid first before products or services are delivered to the taxpayer.

Conclusion 

Since 1994–95, tax receipts have increased significantly, rising from 410 crore (US$54 million) in 1994–95 to 132,518 crore (US$17 billion) in 2012–13. In addition, the overall number of taxable goods and services grew from three in 1994 over 119 in 2012. However, the notion of service taxation was altered from a ‘Specific service method’ to a ‘Negative List regime’ on July 1, 2012. This shifted the service taxation system out of a tax on a limited number of services to something like a tax on all services except those listed on the Negative list.