Service Tax Calculation: Complete Guide & Free Calculator

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Service tax, starting June 1, 2016, is levied at the rate of 15% of the value of taxable services under section 66 of the Service Tax Act. This 15% constitutes a service tax, to be levied at 14%, a 0.5% Swach Bharat Cess and a 0.5% Krishi Kalyan Cess.

How Do I Calculate Service Tax?

The amount of tax that can be levied is calculated as a percentage of the charges received/paid for the provision/receipt of services. Service tax is levied at the rate of 15% of the value of taxable services. However, service tax is not necessarily levied on the entire amount charged to the customer.

For example, there is an abatement of 70% on certain services provided by tour operators, 30% on chit funds and 60% on any air transportation. An abatement is nothing but an exemption. Therefore, a 70% abatement means that only 30% of the total billed amount will attract service tax.

Illustration 1: In case of no abatement

If the value of taxable services equals Rs.10,000, the total service tax would be computed as follows:

Total Service Tax
= 14/100*10,000 + 0.5/100*10,000 + 0.5/100*10,000
= Rs.1500

Illustration 2: In case of 70% abatement

If the value of taxable services equals Rs.10,000, the total service tax would be computed as follows:

Total Service Tax
= 10,000*30% = Rs. 3,000
= 14/100*3,000 + 0.5/100*3,000 + 0.5/100*3,000
= Rs. 450

Who is Liable to Pay the Tax?

Service tax is an indirect tax collected by the Government of India from certain service providers and is paid by the end user. Generally, the person who provides the taxable service on receipt of service charges is responsible for collecting the service tax and paying it to the government.

service tax registration

What Would Constitute a Taxable Service?

To be a taxable service, a service, which is provided or agreed to be provided by a person to another in the taxable territory, should satisfy the requirements of clause 44 of section 65B of the Act. The service should not be specified in the negative list, contained in Section 66D of the Act, or fall under exceptions contemplated under clause 44 of section 65B of the Act. Items on the negative list include educational services, coaching services, agricultural services, funeral services, advertisements in print media, events that have cultural value, electrical services, trading of goods, among few others.

How do I Calculate the Value of Taxable Services?

The manner of value of service is provided in section 67 of the Act. According to sub-section (1) of section 67, wherever service tax is chargeable on any taxable service with regard to its value, its value shall:

a. be the gross amount charged by the service provider for such service provided or to be provided by him if the provision of service is in return for service charges;

b. be such an amount in money as, with the addition of service tax charged, is equivalent to the consideration if the provision of service is for a consideration not wholly or partly consisting of money,;

c. be the amount as may be determined by the Service Tax (Determination of Value) Rules 2006 if the provision of service is for a consideration that is not ascertainable,.

When Service Tax Cannot be Calculated

When it is not possible to ascertain the value of a service, you must refer to Rule 3 of the Service Tax (Determination of the value) Rules 2006. It basically states that, in such a case, the value can be equivalent to that charged for a similar services provided to another person in the ordinary course of trade. Do remember, however, that the service tax so charged cannot be less than the cost of provision of the service.

Service Tax Applicability

Service tax is applicable to any service provider not covered on the negative list with a turnover of more than Rs. 10 lakh. This applies across India, barring the state of Jammu and Kashmir (those operating out of J&K, but offering services outside their home state must, however, collect servicec tax). A key point to remember is that service tax registration is only required after hitting a turnover of Rs. 10 lakh. However, once this turnover number is reached — and you get a service tax registration — you must always collect service tax and file returns, even if your turnover is Rs. 100. In fact, even those with zero turnover must file a nil service tax return.

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A lawyer with 14 years' experience, Vikram has worked with several well-known corporate law firms before joining Vakilsearch.

13 COMMENTS

  1. I came to know that a person buying a new flat need not to pay service tax as a order passed by the Honble High Court Delhi . Is it true .Please reply

    • The Delhi High Court did pass such an order in a single case, but, for now, service tax needs to be paid. Do note, however, that service tax need only be paid on the construction work, not the entire consideration.

  2. Hi
    If someone is paying salary of 1lac and then paying another 10% as service total being 1.10 lac
    Will the service tax calculated in the 10k or on 1.10 lax.

    Thx

  3. I have recently serviced my bike in near by Bajaj service station. Also I had changed few spare parts. In the bill they have charged me service tax of 15% for the whole amount.
    Do I need to pay service tax for the MRP paid spare parts again or just the labour charges alone? Also they have charged 2.5% for card transactions.

  4. Good Morning Sir,
    I am working in a LLP company who make a service provider bill to their party, Sir will you guide me when a company LLP or Pvt Ltd,company,who make this bill to any other Ltd to Pvt.Ltd.company how to calculate service tax ?
    Sir is any amendment issued by service tax department,that 50% of service tax paid by supplier & 50% will be paid buyer.Please guide to me.Facing some trouble to make bills.
    Thanks & Regards

  5. i have query i sell maintenance contracts .i less 1% tds from service charge then do i need to pay income tax on profit i earn from this contract.

  6. Hi

    I have recently booked a flat with Lodha. The consideration value of the flat comes upto Rs. 48,92,000.

    As per the cost sheet, I need to pay Rs. 220849 at the time of registering the property along with an amount of Rs 13845 with is Service Tax towards other charges.

    Please guide if this is Right ?

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