New Service Tax Rate & Provisions After 1-6-2015

The service tax in India has now been raised to 14% with effect from 1st June 2015. This increase was previously proposed in the ‘Make in India’ Budget 2015-16. The existing rate is inclusive of both Education Cess and Second Higher Education Cess.

Understanding Service Tax

Service Tax is a form of taxation which is levied on service providers. The amount of service tax is collected by the service providers and the ultimate payer of the tax are the people who avail the services. However, the amount which is collected as service tax is credited to the account of Central Government.

To make things clear, we would like to take an example.

Suppose Mr. A is an accountant who has offered his services to company XYZ. For his service Mr. A had charged company XYZ INR 1, 00, 000. Now when Mr. A will present his invoice, he will present three amounts. In the first place, the cost of service will be included (INR 1, 00, 000 in our case), in the second place, service tax @ 14% (14% of 1, 00, 000 = 14, 000) and in the third place, final payable amount which is INR 1, 14, 000 (1, 00, 000 + 14,000 in our case).

On the 5th day of the upcoming quarter, Mr. A will then credit INR 14, 000 to Central Government as service tax.

Important Dates

  • For Individual and Partnership firms: Individuals and Partnership firms are required to pay their service tax on quarterly basis.
  • For Others: Entities other than individuals and partnerships firms are required to pay their service tax on a monthly basis.

However, the date for payment of service tax is same for all- 5th day of every quarter (for individuals/partnership firms) and 5th day of every month (for others). When payment is made through online portal, a day’s grace is offered, that is, 6th day of every month/ quarter.

How to Invoice Service Tax Before & After 1st June, 2015?

Penalty for Being Late

There are penalties if service tax is not paid at the right time. The rate of interest varies according to the delay in payment.

  • Payment of Service tax delayed by 6 months or less- Rate of interest will be 18%
  • Payment of Service tax delayed by 6 months. But less than a year- Rate of interest will be 20%
  • Payment of Service tax delayed by more than a year- Rate of interest will be 30%.

It should be noted that the rate of interest will be computed on the basis of simple interest.

With the application of new service tax rate, people should expect an increase in expenditure in the following sections:

  • Mobile phone bill
  • Restaurant bill
  • Courier Service
  • Credit Card bill
  • Online Shopping
  • Travel tickets, etc.

The best way to reduce the impact of service tax on your expense is to plan your expenses and invest more in insurance sector. Prior to June 1 2015, the rate of service tax was 12.36% in India.

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