“Service to mankind is service to god.”

The term service means the act of helping or doing work for another or for a community etc. Thus its stands for assistance or benefit given to someone. Though ordinarily for rendering such service certain payment is made but it is not so in all the cases. The amount charged for such service is the remuneration of the person providing such service.

If we look back, tax on services is not new as we have been paying taxes on services in past also in the form of luxury tax, entertainment tax, expenditure tax, amusement tax, gambling tax, commercial tax, interest tax etc.

Need for Service Tax

In any Welfare State, it is the prime responsibility of the Government to fulfill the increasing developmental needs of the country and its people by way of public expenditure. India being a developing economy is striving to fulfill the obligations of a Welfare State within its limited resources. The Government’s primary sources of revenue are direct and indirect taxes.

Central Excise Duty on the goods manufactured / produced in India and Customs Duties on imported goods constitute the two major sources of indirect taxes in India. But revenue receipts from Customs & Excise are not keeping pace with the growth in economy to WTO commitments and rationalization of commodity duties.

It is also well known that services constitute a larger proportion of the consumption of the rich rather than of the poor as the demand for services is income-elastic. Depending on the socio-economic compulsions, each country evolved a taxation system on services adopting either a comprehensive approach or a selective approach.

While most of the developed countries tax all the services with very few and limited exemptions, some of the developing countries tax select services only. Hitherto, India has adopted a selective approach to taxation of services.

Introduction of Service Tax in India

Dr. Manmohan Singh, the then Union Finance Minister, in his Budget speech for the year 1994-95 introduced the new concept of Service Tax and stated that “There is no sound reason for exempting services from taxation, therefore, I propose to make a modest effort in this direction by imposing a tax on services of telephones, non-life insurance and stock brokers.”

Service Tax had been levied on the recommendations made in early 1990’s by the Tax Reforms Committee headed by Dr.Raja Chelliah. The Committee pointed out that the indirect taxes at the Central level should be broadly neutral in relation to production and consumption of goods and should, in course of time cover commodities and services. The Committee felt that we should move towards full-fledged Value Added Tax (VAT) system covering services and commodities.

Service tax must be a part of VAT at the central level. It was envisaged that as the central excise duties on goods would get gradually transformed into a value added tax at the manufacturing level, service tax would get woven into that system. Therefore, a tax could be levied on services that enter into the productive process. The Committee emphasized the importance of moving towards VAT, for making the system of indirect taxation broadly revenue neutral in relation to production and consumption and widening the tax base by covering exempted commodities. The Committee also recommended charging of tax on services such as advertising, insurance, share broking and telecom etc. to begin with on the pattern of advanced economies. The basic objective of Service Tax is broadening the tax base, augmentation of revenue and larger participation of citizens in the economic development of the nation.

Bringing services under taxation is not simple as the services are intangible and are provided by large groups of organized as well as unorganized service providers including retailers who are scattered across the country. Further, there are several services, which are of intermediate nature. The low level of education of service providers also poses difficulties to both-tax administration and assessees.

Our Tax Services includes :
  • Tax compliance including Income-tax assessments (Tax audits)
  • Tax Planning
  • Tax return preparation and filing of individuals, partnerships, corporations, trusts, estates, gifts, etc.
  • Compliance with law relating to Sales tax for ex. Registrations, filings of periodical returns, maintenance of records and assessments
  • Timely deduction and deposit of Tax at source & Quarterly TDS / TCS Return preparation and Filing thereof

Value of taxable services is gross amount received or charged from the client. The valuation under service tax is governed by the provisions made under section 67 of the Finance Act, 1994 Value of taxable service shall be determined on the basis of one of the following:

  • consideration in money for providing the service.
  • consideration in money plus consideration in any other kind
  • consideration in any form other than money

No separate statutory record has been prescribed which are required to be by the assessee . The records as maintained by the assessee under any other law in force, (including private record maintained by assessee whether computerized or written manually) are acceptable for the purpose of Service Tax .

Every person providing taxable service is required to issue (within 14 days of completion of service) an invoice, a bill signed by him . Such invoice, bill or challan should be serially numbered and should contain following information :

  • Name, address and registration number of assessee.
  • Name and address of the person receiving services
  • Category of Service , Value of taxable service
  • Service tax & Cess payable thereon.