Service tax refers to tax collected by the government of India from certain service providers for providing certain services. The person who pays service tax can be either a service provider or a service receiver or any other person who is responsible for providing certain services. Service tax is a kind of indirect tax because the service providers pay the tax and recovers it from the service receivers who receive or purchase the taxable services. It is a kind of tax that you pay to the government for enjoying different services received from various service providers.
The payment of service tax by companies, trusts, associations, societies has to be done in monthly intervals. For example, Service Tax for the month of February has to be paid on or before 6th of March.
Service Tax for Quarter ending or month ending March
Service Tax on value of taxable services provided during the month of March or quarter ending March is required to be paid by 31st March. For example, service tax for the quarter Jan to March has to be paid on or before 31st March.
Payment of Service Tax
Service tax is payable on the basis of date of billing or receipt of advance, whichever is earlier and not on receipt basis.
Individuals, proprietary concerns, partnership firms, Limited Liability Partnerships (but not HUFs) whose total value of taxable service is Rs.50 Lakhs or less in the previous financial year can opt to pay service tax on receipt basis instead of accrual basis.
Normally, service tax is paid on all services except for those included in the negative list of services. All service providers including central and state government service providers as well as private sector service providers are liable to pay service tax.
However, there are a few exceptional scenarios wherein service providers can avoid paying service tax. Listed below the major exemptions:
Payment of Service Tax on reverse charge mechanism
Generally, the person who is providing taxable service is liable to collect and pay service tax from the service recipient. However, in few cases, exceptions have been made and the service recipient is made liable to pay service tax. Such payments are called as ‘service tax on reverse charge mechanism’. In case of reverse charge, the recipient has to pay tax only after payment is made to the service provider. However, if the payment is not made within a period of 3 months of the date of the invoice, the due date for payment of service tax on reversecharge basis shall be the date immediately following the expiry of 6 months (from the date of the invoice received from the service provider).
Reverse Charge Mechanism is now, classified into two categories.
Reverse charge is primarily applicable on the following specified services:
a. Insurance Services
b. Services by a recovery agent to an NBFC
c. Good Transportation Agency Services
d. Sponsorship Services
e. Arbitral Services
f. Legal Services
g. Services by a director to a Company or a Body Corporate
h. Support Services
i. Supply of Manpower Services
j. Mutual Fund Services
k. Lottery Services
l. Import Services
m. Aggregator Services
n. Rent-A-Cab Services
o. Works Contract Services
Cenvat credit cannot be utilized for payment of service tax when tax is payable under reverse charge method.The service recipient is liable to pay service tax even if the value of service of the service provider is less than Rs.10 Lakhs. Thus, small service provider exemption is not available in case of reverse charge method.The service recipient is eligible to avail Cenvat credit of the service tax paid on reverse charge method- However till 31.03.2015, such credit shall be available to the service recipient only after: a. the payment has been made to the service provider and; b. Service tax is paid. w.e.f. 01.04.2015, credit on reverse charge mechanism shall be available to the service recipient on payment of service tax.
Interest on delayed payment of service tax
Penalty on Nonpayment of service tax
Excess payment of Service Tax
One can pay any amount of service tax (more than the actual dues) as advance towards future tax liability. Such excess amount can be adjusted against the future tax liability. There is no limit on amount that can be adjusted or time limit for adjustment.
Excess Tax collected from the customer to be paid to the Government or refunded to the customer
Service tax is an indirect tax, it is to be collected from customer and remitted to the government. If tax is collected from the customer either it has to be remitted (after adjusting Cenvat credits, if any, to the government or to be refunded to the customer (in the event of non-provision or part provision of service). One can’t keep the taxes collected with him.
Adjusting the Service Tax paid but the payment not recoverable later.
It may happen that invoice is raised and service tax is paid to the government, but the payment may not come partly or fully from customer. In such cases, the taxpayer can issue a Credit Note to customer and then adjust the excess service tax paid by him against his service tax liability for the subsequent period. Please note that self-adjustment is possible for reasons such as service not provided partly or fully, invoice is renegotiated due to deficient provision of service, tax. However, such adjustment is not permissible in case of bad debts or giving simple discount/reduction in charges.
Service Tax on Advance Payment
Service Tax is payable as soon as advance is received, even if service is provided later. For example, Mr. X gets an advance of Rs.2,00,000 from the client in the month of March 2015 for the services to be provided in April 2015. In this case, Mr. X has to pay Service Tax on Rs.2 Lakh in the month of March 2015. Please note that service tax is levied on service provided or agreed to be provided.