Service Tax India

New Service Tax Law Effective from 01,July 2012.

Who is liable to pay service tax India?

If you are a person providing the taxable service, then on receipt of service charges (Fees) you are responsible for paying the Service Tax to the Government.

As per the definition given by the Act, the following shall be considered as persons:

  1. an individual,

  2. a Hindu undivided family,

  3. a company,

  4. a society,

  5. a limited liability partnership,

  6. a firm,

  7. an association or body of individuals, whether incorporated or not,

  8. Government,

  9. a local authority, or,

  10. every artificial juridical person, not falling within any of the preceding sub-clauses.

Sometimes Government and local authorities also liable to pay tax where similar or substitutable services are provided by private entities.

The main reasons are,

  1. to provide a level playing field to private entities in these areas as exemption to Government in such activities would lead to competitive inequities; and

  2. to avoid break in Cenvat chain as the support services provided by Government are normally in the nature of intermediary services.

But, most of the services provided by the Government or local authorities are in the negative list.

Negative List

Earlier service tax was levied in India on specified taxable services only. In budget 2012 a new system of taxation of services popularly known as Negative List is announced.

As per the new system all services, except those specified in the negative list, will be subject to taxation.

What is Service?

Service is defined as:

  • any activity

  • for consideration

  • carried out by a person for another

  • and includes a declared service.

What is not considered as Service?

The said definition further provides that service does not include –

  1. any activity that constitutes only a transfer in title of goods or immovable property by way of sale, gift or in any other manner,

  2. a transfer, delivery or supply of goods which is deemed to be a sale of goods,

  3. a transaction only in money or actionable claim,

  4. a service provided by an employee to an employer in the course of the employment,

  5. fees payable to a court or a tribunal set up under a law for the time being in force.

Service is taxable only if an activity is carried out for a consideration.

It means, any activity carried out without any consideration like donations, gifts or free charities are not taxable.

But any activity carried out by a charity for consideration would be a service and it is taxable.

Any donations you made to a charitable organization are not consideration unless charity is obligated to provide something in return to you.