Indian Income Tax

Service Tax In India

Dr. Manmohan Singh, the then Union Finance Minister, in his Budget speech for the year 1994-95 introduced the new concept of Service Tax and stated that '' There is no sound reason for exempting services from taxation, therefore, I propose to make a modest effort in this direction by imposing a tax on services of telephones, non-life insurance and stock brokers.''

Service Tax has been introduced in order to explore new avenues for taxation and to bring more people into the tax net. Service Tax generated revenue of Rs 2612 crores in 2000-2001. In 2001-2002 it is estimated at 3600 crores.

Bringing services under taxation is not simple as the services are intangible and are provided by large groups of organized as well as unorganized service providers including retailers who are scattered across the country. Further, there are several services, which are of intermediate nature. The low level of education of service providers also poses difficulties to both-tax administration and assessees.

The Service Tax assessee is the person/firm who provides the service. Hence, the Service Tax must be paid by the person/firm providing the service.

As stated earlier, service tax was introduced in India for the first time in 1994. Chapter V of the Finance Act, 1994 (32 of 1994) (Sections 64 to 96) deals with imposition of Service Tax interalia on-

  1. Service rendered by the telegraph authorities to the subscribers in relation to telephone connections.
  2. Service provided by the insurer to the policy-holder in relation to general insurance business.
  3. Service provided by a stockbroker.
The Finance Acts of 1996, 1997, 1998, 2001, 2002 and 2003 added more services to tax net by way of amendments to Finance Act, 1994. At present total number of services on which Service Tax is levied has gone upto 58 despite withdrawal of certain Services from the tax net or grant of exemptions (Goods Transport Operators, Outdoor Caterers, Pandal and Shamiana Contractors, and Mechanized Slaughter Houses).

Service tax Includes

Service tax is a form of indirect tax that is applicable to the services that are taxable in nature. This tax came into existence as government wants an easy option that is transparent in nature that can generate revenue for the nation in an easy way. In past few years service tax is applied on various new services. Unlike value added tax that is applicable on goods and commodities, this tax is imposed on various services that is provided by the financial institutions such as banks, stock exchange, colleges, transaction providers, telecom providers. Banks are the first that charges service tax to its customer since inception often they termed service charges as processing fees. The responsibility of collecting the tax lies with the Central Board of Excise and Customs (CBEC) itís a body under the Ministry of Finance. This body formulates the tax structure in the country.

Service tax was imposed first in India in July 1994. The service tax is applicable all over India however due to the national interest and for the betterment of the people of Jammu and Kashmir it is waved off. In 2006- 2007 service tax was increased from 10% to 12% however it was again reduced from 12% to 10% in the Union budget of 2009. It is often noticed that there is a lack of service tax information among the people. Government has gradually increased the list of taxable services to increase the revenue. Letís have a look at the major services that comes under the scanner of service tax:

- Telecommunication
- Traveling agencies (air, road and railway services)
- Architects
- Management consultants
- Universities, colleges and schools
- Credit rating agencies
- Market research analyst
- Broadcasting services (television and radio)
- Banking and other financial services
- Authorized service stations
- Export import unit
- Cargo and shipping
- Telegraph services
- Hospitals and health care services
- Storage and warehousing services
- Maintenance and repair services
- Franchise owner
- Retail stores
- Transportation of goods
- Packaging services
- Airport services
- Cable operators
- Event managements
- Beauty parlors
- Dry cleaning services
- Real state agents
- Consultants of different services
- Insurance underwriting agencies
- Stock broker
- Passport services
- Immigration services
- Legal advising units
- Chartered accountant firms
- Customer service units
- Technical support advising firms
- Touristís services
- Automobile service stations
- Electronic and electrical service stations
- Human resource services
- Membership of clubs and association
- Share and stock transfer agent
- Survey and exploration of minerals
- Cost accountant
- Internet telephony services
- Security agencies
- Transport of goods by air
- Health clubs
- Pager services
- Real state agent
- Ship management services
- Port services
- Custom house agent
- General insurance services
- Containers by rail
- Postal services


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