Service Tax Calculation: Complete Guide & Free Calculator

Last Updated at: April 01, 2020
128456

 

Service tax no longer exists since the introduction of GST w.e.f 01.07.2017. Nevertheless, the audit and appraisal of service tax cases continue even after 01.07.2017 and interest must be charged in case of any relevant demand.

 

Please Note: Service Tax does not apply any more. Kindly refer to GST Registration instead.
To calculate your GST, click here to obtain a free GST calculator.

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, one cannot impose service tax 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.

get service tax

Illustration 1: In case of no abatement

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

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

Illustration 2: In the case of 70% abatement

If the value of taxable services equals Rs.10,000, the total service tax computes 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?

Government of India collects and indirect tax called the Service Tax. Certain service providers receive it and the end-user pays it. 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 charge of the gross amount by the service provider for such services 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 defined 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 similar services provided to another person in the ordinary course of trade. The charge for service tax 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 service tax). A key point to remember is that service tax registration is necessary only 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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Service Tax Calculation: Complete Guide & Free Calculator

128456

 

Service tax no longer exists since the introduction of GST w.e.f 01.07.2017. Nevertheless, the audit and appraisal of service tax cases continue even after 01.07.2017 and interest must be charged in case of any relevant demand.

 

Please Note: Service Tax does not apply any more. Kindly refer to GST Registration instead.
To calculate your GST, click here to obtain a free GST calculator.

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, one cannot impose service tax 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.

get service tax

Illustration 1: In case of no abatement

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

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

Illustration 2: In the case of 70% abatement

If the value of taxable services equals Rs.10,000, the total service tax computes 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?

Government of India collects and indirect tax called the Service Tax. Certain service providers receive it and the end-user pays it. 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 charge of the gross amount by the service provider for such services 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 defined 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 similar services provided to another person in the ordinary course of trade. The charge for service tax 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 service tax). A key point to remember is that service tax registration is necessary only 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.