Service Tax

 

Service Tax is an Indirect Tax.  Why is it called an Indirect Tax? Well, you the consumer pay it indirectly to the government.

Service Tax was introduced in India in 1994 by Finance Minsiter Manmohan Singh with an intention to reduce tax burden from Manufacturing /Servicing companies for the services they provide. So how is the burden reduced? It is transferred to the consumers. The service tax is pre calculated and added to the price of a product. When you purchase a product, you are paying the service tax on the product and this amount is paid back to the government by the company.

This service tax is only applicable to those firms whose turnover is more than Rs.10 lacs per annum and all states other than Jammu and Kashmir.  Currently the service tax rate in India is 12.36%.

Service Tax  ——————————————– 12.00%

+ Education Cess @ 2%——————————-  0.24%

+Senior and Higher Education Cess @1%———0.12%

Effective Tax rate                                          12.36%

 

For Firm’s Accounting:

When you sell a product/service you receive the Service Tax from the consumer. You will record it as ST Payable as you are obliged to pay it back to the government what you received it from the consumers or end users.

When you purchase a product/service you are paying service tax the retailer or supplier.  You are the buyer or creditor. If you are a firm purchasing from a supplier, you will record the service tax amount paid on your purchase as ‘’ST Receivable’’.  As you have already paid this ST, this amount will be set off against your ‘’ST Payable’’ obligation.

-D.V.P