The Central Government of India levis service tax according to norms set by the Finance Act, 1994. Although every state is included in this provision,service tax is not applicable in the state of Jammu and Kashmir. The state of Jammu and Kashmir levies its own taxes for services provided in the state.
What if Service is Delivered Outside J&K?
Section 64 (Clause 1) of Finance Act, 1994 does not extend service tax to the state of Jammu & Kashmir. However, if any taxable service is rendered by a person within Jammu & Kashmir to clients residing in other states, it is liable to pay service tax.
Suppose a person in another state provides taxable services to persons living in Jammu & Kashmir, it will not be liable to pay service tax. Hence, any goods or services consumed in the state will not be taxable under the Service Tax scheme.
However, say, for example, you are a freelancer working for the state of Jammu and Kashmir, and your client is residing in another state. Since the service that you are providing is utilized outside Jammu and Kashmir, you need to pay service tax under the Act.
However, if you, as a company or a freelancer, have a business in Jammu and Kashmir and you provide services to clients within the state territory, you need not pay the service Tax.
Similarly, if your company is located outside the State of Jammu and Kashmir, but they provide services to a firm or client within the State, you, as a provider, need not pay the service tax, since ‘the service you provide is utilized in Jammu and Kashmir.’
Thus, any service rendered within Jammu and Kashmir, either by a person residing within the state or outside the state, does not attract service tax. However, if, at the same time, even if the individual is working within the state of Jammu and Kashmir, and rendering work outside, to say, any location within India other than J&K, he or she needs to pay service tax (irrespective of being a J&K resident).
Service Tax Registration for J&K Businesses
As discussed, a business of Jammu & Kashmir is in need of service tax registration if its turnover of services outside the state is over Rs. 9 lakh, just as is the case for businesses in any other part of India.
Such a business would need to collect service tax on hitting Rs. 10 lakh in turnover.