Applicability
of Service Tax:

Illustration: Mr. J of
Jammu and Kashmir is providing advertisement service in the state of Jammu and
Kashmir as well as in other parts of India. Service tax is not applicable for
services rendered in the state of Jammu and Kashmir. However, he is liable to
pay service tax on those services which are rendered outside the state of
Jammu and Kashmir. Service tax liability is based on the place where the
service has been rendered, but not the place from which the service is
provided.

Statutes
Governing The Levy Of Service Tax:

The following are the sources provide provisions relating to service tax.
Service tax is governed by

Various Rules in force

Rules are supplementary to carry out the provisions of the Act. Rules can
never override the Act and cannot be in conflict with the same.

Rate of Service
Tax:

At present, the effective rate of Service tax is 10.36 %. The above rate
comprises of Service tax @ 10 % on “Gross Value of taxable service”. Education
cess [EC] @ 2 % on service tax amount. Secondary and Higher Education cess
[SHE] @ 1 % on service tax amount.

Taxable
Service:

The Act provides the list of services to which the Act applies in section 65
(105) of the Act. At present there are 106 services covered under the service
tax net.

Taxable Value:

Valuation under service tax is only with reference to the valuation rules
namely “Service Tax
(Determination of Value) Rules, 2006”.

Taxable Event
In Service Tax:

Tax
Liability:

Taxable event happens when taxable services are rendered. Tax liability taxes
place as soon as payment for service is received. The payment may be received
in advance (ie) before the execution of the service or in arrears (ie) after
rendering the service. If service provider receives advance payment; tax
liability to pay service tax arises.

Persons Liable
To Service Tax:

*Where a provider of taxable service provides one or more taxable service
from one or more premises, the aggregate value of all such taxable services
and from all such premises and not separately for each services or each
premises shall be taken into account for computing “aggregate value of taxable
service.

*Input service distributor means on office managing the business of
manufacturer or producer of final products or provider of output services,
which receives credit towards purchase of input services and issues invoice,
bill or, challan for the purpose of distributing the credit of service tax
paid.

Illustration: X ltd has a
place of business at Chennai and is registered under Service tax in Chennai.
He has factories at Trichy, Coimbatore with separate registrations and a unit
in Hyderabad. X ltd make centralized purchases for its entire unit and
distribute the input goods and services. It decides to distributes available
tax on input services of Rs.20, 000/- in the suitable ratio (as the case may
be) in the ratio 20:30:20:30. Every input service distributor, distributing
credit of taxable services should issue an invoice, a bill or challan signed
by him or a person authorized by him for each of the recipient of credit
distributed. The invoice or bill must be serially numbered.

*Services covered under section 68 (2): [Deemed service providers]

Who Is Liable
To Register ?

Registration
Procedures:

Any person liable to pay service tax has to register with the Superintendent
of Central Excise within 30 days from the date of commencement of the business
of taxable service. Invoice should be issued within 14 days from the date of
completion of taxable service or receipt of any payment towards value of
taxable service.

Registration
procedure under Service Tax:

Step 1: Apply for
registration in Form ST – 1 to the Superintendent of Central Excise. Online
application can also be made.

Step 2: Submit along with
Form ST – 1 the following documents

Step 3: The
Superintendent of Central Excise will grant a certificate of Registration in
Form ST- 2 within 7 days of the date of receipt of application.

Step 4: Certificate of
Registration can be surrendered if the assessee ceases to provide the taxable
service for which he had been registered.

Where a service rendered from different location falling under different
Commissionerates, multiple registrations are required, however, even in this
case a single Registration is possible, with the permission from the
Department, if the assessee maintains centralized accounting for multiple
services provided from more than one premises. If the registration certificate
issued by the department is lost, the assessee can make written request for
duplicate registration certificate.

Payment Of
Service Tax:

Filing Of
Returns:

Returns are filed half yearly in Form ST – 3 [ Form ST – 3A for PA]. If the
service provider is not able to estimate the tax amount properly, he may apply
for Provisional Assessment.

Due dates are as follows:

(a) 25th October for the
half year ending 30th September.

(b)25th April for the half year ending 31ST March.

Revised returns can be filed within 90 days from the date of filing of
original return.

Nil return has to be filed even there is no tax liability and no taxable
services rendered.

Records To Be
Maintained:

The records as maintained by the assessee in accordance with the various laws
in force shall be accepted. Every assessee is required to furnish to the
Superintendent of Central Excise a list of accounts maintained by him in
relation to service tax. This is to be submitted only once at the time of
filing the first ST- 3 return.

Such records need to be preserved at least for a period of five (5) years
immediately after the financial year to which such records pertain.

India has embarked on a series of tax reforms since early 1990s. The focus of reforms has been on rationalization of the tax rates and simplification of
procedures.

In India tax is levied by central, state and local government bodies.
Principal taxes including corporate tax, custom duties, central excise duty
and services tax are levied by the central government. On the other hand
states levy principal taxes like state excise duties, sales tax and stamp
duties. Local government bodies levy octroi duties and other taxes of local
nature like water tax and property taxes. .

Income earned in a financial year is liable to tax as per the rates prescribed
for that year. A financial year runs from 1 April to 31 March of the following
year. India follows a residence based taxation system. Broadly, taxpayers may
be classified as residents or non-residents. Individual taxpayers may also be
classified as ‘residents but not ordinary residents’.

An Indian company is always an Indian resident. Additionally, any other
company whose affairs are wholly controlled and managed from India is also a
resident. Any other company would be a non-resident.

An individual is resident in India if he is in India in the tax year for:

The income is categorized under five broad heads or classes of income. The
taxable component of the income is ascertained according to the rules for a
particular head/class of income and then aggregated to determine the total
taxable income. However, losses under certain heads cannot be aggregated with
income earned under other heads.

Salaries cover those that
are received for services rendered and include wages, pension, fees,
commission and the taxable value of perquisites. For this purpose, valuation
rules for certain standard perquisites, typically provided by employers in
India, have been issued. Standard deduction is available from the salary
income. The amount of deduction depends upon the amount of salary earned.

Income from house property includes
income arising from use of residential and commercial property. Only two
prescribed deductions are permitted while computing the income.

Profits and gains from business or profession covers
income earned from business or profession net of permissible deductions,
against the revenue earned. In addition, general non-specified revenue
expenses, incurred for the business are also deductible.

Capital gains cover gains
arising from transfer of capital assets. The period of holding determines the
classification of the asset, which then determines the manner of taxation.
Capital assets held for less than 36 months (12 months in case of
shares/securities) are treated as short-term assets. Other capital assets are
categorized as long-term capital assets. Long-term capital gains enjoy a lower
rate of tax. This may further be reduced by making prescribed investments.

Sale of certain specified investments are subject to gross basis of taxation,
under which tax is levied on value of transaction. Gain arising from
transactions subject to gross basis of taxation is entitled to concessional
tax treatment under income tax.

Income from other sources is
the residuary head/class of income and covers any income not specifically
dealt with under the other heads. A deduction in respect of expenses incurred
for earning the income, is available.

Individuals

Individuals are liable to tax in India at different rates of tax as under:

Indian tax law provides for exemption of income earned by foreign nationals
for services rendered in India, subject to prescribed conditions. For example

Resident Companies

Indian resident companies are liable to tax at 33.66 per cent on net basis.
Additionally, companies are also liable to dividend distribution tax (DDT) at
14.025 per cent on the amount of profits distributed to shareholders.

Non-resident Companies

Non-resident companies are typically liable to tax at 41.82 per cent on net
basis. Non-resident companies may be taxed on a gross basis or on a
presumptive basis in certain cases. However, income from long-term capital
gains is taxable at the rate of 20.91 per cent.

Kinds of Taxes

Annual Tax

An annual tax is levied on income earned, for a financial year, on the various
taxpayers listed above as per the rates declared by the annual budget. The
rates for the financial year 2005-06 are as stated in the section dealing with
“Taxation of different taxpayers”. The rates would vary with each budget. The
annual tax is payable in advance by way of quarterly installments during the
financial year. The quarters would vary depending on the taxpayer involved
e.g. in the case of companies the payment for the first quarter would fall on
15 June of the financial year involved.

Minimum Alternate Tax (MAT)

The domestic tax law also requires companies to pay MAT in lieu of the regular
corporate tax, in a case where the regular corporate tax is lower than the
MAT. MAT is computed on the book profits; subject to certain prescribed
adjustments at the rate of 8.415 per cent in the case of domestic companies
and 7.841 per cent in case of non-resident companies; MAT paid in any year is
now available as credit in any subsequent year.

Dividend Distribution Tax (DDT)

Dividends are currently exempt from taxes in India. However the company paying the dividends is required to pay DDT on the amount of dividends declared, at the rate of 14.025 per cent. DDT is a tax payable on the dividend declared, distributed or paid.