What is the Service Tax limit?

Service tax is a tax that is levied by the Government on availing certain services like eating out, shopping etc. It can be charged from the service provider or the service receiver, though most often than not, the service provider passes this burden on to the consumer. It is an indirect form of taxation i.e. it is levied only when a person avails a particular service.

The service tax in India in regulated by the Finance Act of 1994 and more specifically, the rules relating to service tax are called the Service Tax Rules.

Originally, there were certain services that were enumerated upon which service tax was to be levied. It included services like eating out in an AC restaurants, short and long term lodging offered by hotels and private guest houses, telecom services etc. However, from 2012 onwards, all services except the ones mentioned in the “negative list” of the Finance Act, 1994 are to be charged with service tax.

The “negative list” refers to the list of the services mentioned in Section 66D of the Finance Act of 1994.

Earlier service tax was charged from only individual service providers in India but after the new regulations set down in 2012, individual service providers and companies both are liable to pay service tax under the Service Tax Rules, 1994. However, one glaring difference between the two is that individual service providers have to pay service tax in cash while companies are to pay the service tax on accrual basis.

The exception to the rule- Service providers are not liable to pay service tax in cases where their annual income in a financial year does not exceed rupees 10 lakhs i.e. any service provider whose value of services is below rupees 10 lakhs, the service provider cannot be charged service tax under these rules.

Further, these rules are not applicable to the State of Jammu and Kashmir.

Service tax limit in India

After the budget of 2016, the service tax rates in India, as announced by the Finance Minister, Mr. Arun Jaitley, can be enumerated as follows:

The current service tax in India is 15% which consists of Krishi Kalyan cess of 0.5%, Swacch Bharat cess of 0.5%, Secondary and Higher education cess, Education cess, Value added tax. However, it may be noted that the latest tax, i.e. the Krishi Kalyan Tax is not expected to create a lot of burden as the Government looks to offer various rebates to manufacturers in every step of the manufacturing process.

To get a better understanding of how much tax would you be paying and an exact breakdown of your tax, let’s go through this example.

Example: If you go out for a dinner with your family and friends and your bill amounts to Rupees 3,000 excluding tax, this is what your final amount will look like:

Your total restaurant bill for food: Rs 3,000

Service tax @ 10%: Rs 300

Subtotal: Rs. 3300

Service tax levied on 40% of the total amount of the bill: 14% of 1200 = Rs 168

Swacch Bharat cess @ 0.5% of Rs 600: Rs 3

Krishi Kalyan cess @ 0.5 % of Rs 600: Rs 3

VAT @ 12.5% of the subtotal: Rs 412.5

So your total bill will reflect the sum total of all these amount i.e. Rs 3,000+ Rs 300+ Rs 168 + Rs 3 + Rs 3+ Rs 412.5

And your total amount payable will be: Rs 3,886.5

However, it must be noted that the Swacch Bharat cess is wholly controlled by the Government of India and the State Governments have no interference in it. Further, it may also be mentioned that “service charge” is as such illegal to be levied over and above service tax in the region of the Union Territory of Chandigarh as per a recent decision of the honorable Panjab and Haryana High Court.

Author: This blog is written by  Ms. Mrinaal Datt, student of  University Institute of Legal Studies, Punjab University, a passionate blogger & intern at  Aapka Consultant.

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