Service tax rules state that even though the service provider has to pay tax to the government,

it is the receiver of the service that actually pays the tax. Currently, it stands at 15%. There is
a whole list of rules and regulations for service tax.

Service Tax has been replaced by the Goods and Services Tax (GST) starting 1 July 2017.

Service Tax Payment Rules

Service tax payment rules are defined under Rule 6 of service tax.
Listed below are some of the important rules under the category:
 Service tax should be paid to the Central Government by the 5th of the month following the
month in which payments were received.
 The assessee should deposit the tax with a bank designated by the Central board of Excise.
 The assessee can adjust the excess service tax paid by them if they have paid for a taxable
service not provided by them.

Service Tax Registration Rules

Listed below are some of the important rules under the category of service tax registration:
 Every individual liable to pay service tax should register through Form ST-1 within 30 days
from the date on which service tax was levied.
 If an assessee is providing more than one taxable service, they can mention all the taxable
services provided by them in a single application.

Service Tax Exemption

Small service providers can avail exemptions on service tax provided they fulfil certain criteria. There is also a
detailed list of services or service providers who can avail of these exemptions.

Note: Service Tax has been replaced by the Goods and Services Tax (GST) starting 1 July 2017.

As per the Budget 2016, the rate of service tax levied on all taxable services stands at 15%. However, certain
exemptions exist whereby service tax is not required to be paid. Entities providing any kind of service can avail of
these exemptions, regardless of the type of service they offer.

General Service Tax Exemptions

In general, service providers can avail of the following exemptions, if the services provided by them
meet any of the following criteria:
 Small scale service providers can avail of service tax exemption up to a maximum of Rs 10
lakhs.
 Any service that is offered to any international organisation or to the United Nations is
exempt from service tax
 Any service that is offered to units of Special Economic Zones or to Special Economic Zone
developers is exempt from service tax
 Any service that is provided or offered free of cost is exempt from service tax
 Taxable services that are provided to diplomats and their family members for official
purposes are exempt from service tax
 Taxable services provided to diplomatic officers as well as their family members for
personal purposes are also exempt from service tax
 Any service that was provided before it was considered to be a taxable service, despite the
fact that payments took place at a later date, is exempt from service tax

Service Tax Exemptions for Small Service Providers

Small service providers whose total turnover value of all taxable services provided by them is not
more than Rs 10 lakhs over the course of a financial year are eligible to avail of service tax
exemptions. However, even though this exemptions can be availed if the total turnover is in excess
of Rs 10 lakhs, small service providers are mandatorily required to place an application for service
tax registration within a time frame of thirty days after his or her turnover goes beyond Rs 9 lakhs.

Some of the other conditions that small service providers are required to fulfil in order to
avail of service tax exemptions are as follows:
 If the total value of the taxable services provided by the small service provider is not in
excess of Rs 10 lakhs for the present financial year as well as the financial year prior to the current
one
 Small service providers must not utilise the CENVAT credit that they have received on input
services or capital goods over the period of time during which they are looking to avail of service
tax exemptions
 Small service providers cannot avail of service tax exemptions should a situation arise
wherein a reverse charge may apply
 Exemption from service tax cannot be availed If any service that is deemed taxable is
provided by a small service provider operating under a brand or trade name
 If a small service provider offers multiple services through multiple outlets, then service tax
exemption can only be availed of if the total turnover of all services from all outlets is not more
than Rs 10 lakhs

Negative List of Service Tax:

Under Section 66D of the Finance Act 1994, a negative list of services have been outlined, which
are deemed to be exempt from service tax. Any service provided that does not come under the
purview of this list is liable to be levied with service tax.

Service Tax Exemptions apply to the following services outlined

under the negative list
 Any service that are provided by a government or localised authority, with the exception of
the following:
 Postal service
 Aircraft services in the vicinity of airports
 Vessel services in the vicinity of ports
 Transportation services with regards to goods or passengers
 Any other services provided to organisations carrying on business, but which do not fall
under the services mentioned above
 Any service rendered by the Reserve Bank of India (RBI)
 Any service rendered by a diplomatic mission of foreign origin with operations in India, and
located within the country
 Any service in relation to agricultural operations such as:
 Production
 Harvesting
 Testing
 Cultivation
 Agricultural protection
 Supply of manpower to farms
 Any agricultural process taking place on a farm
 Lease of equipment or land
 Storage of produce
 Agent services
 Agricultural processes such as trimming, curing, cutting, packaging, fumigating, tending,
cooling, grading, drying, sorting etc, which only seek to enhance the marketability of the produce
without changing or altering any of its characteristics
 Any service that involves the trade of products or goods
 Any activity that results in the creation or manufacture of goods
 Any service that involves the sale of space or time periods for the purpose of advertising,
either through TV or radio
 Any service with regards to toll fees for bridges or roads
 Services that involve windfalls such as lotteries or betting
 Services in relation to the admission fees levied on access to events with regards to
entertainment
 Services related to the distribution and transmission of power and electricity by any utility
dealing with the same
 Educational services such as:
 Education with regards to pre-school
 Education with regards to higher secondary school or similar
 Education in relation to the attainment of any qualification that is legally recognised
 Education as a component of an authorised vocational course

Banking services such as

 Services relating to the extension of deposits or advances wherein the value is denoted in the
form of interest or rebate
 The sale or acquisition of foreign currency that takes place between banks, recognised forex
dealers, and between banks and recognised forex dealers
 Transportation services provided to passengers by certain modes of transport such as:
 Transport by rail in any class with the exception of Class A or Class B
 Transport by stage coach
 Transport by metro rail or tram
 Transport via inland canals or waterways
 Public forms of transport such as taxis, autos or any other vessel not used for the purpose of
tourism
 Transportation services with relation to goods such as:
 Transport by roadways with the exception of agencies dealing with the courier or transport
of goods
 Transport by airplane or ship from any destination outside the borders of India
 Transport by inland canals or waterways
 Any funeral services such as:
 Services related to the burial of an individual
 Crematory services
 Mortuary services
 Services involving the transportation and transfer of the deceased individual
 Services relating to any vocational courses that have been offered by any instituted that is
affiliated and recognised by the State Council of Vocational Training
 Any service involving agricultural testing with regards to produce
Place of Provision of Services
Place of provision of services plays an important role in determining the applicability of service tax
on export of services. The following rules are applicable for determining the place of provision of
services, as per the Service Tax Act.

General Rule
The place of provision of service is the location of the service recipient. If the location of the service
recipient is not available, then the location of service provided will be as per the place of provision
of services listed below.

Performance-Based Service
If goods are physically made available to the service provider by the service recipient, then the
location where the services are actually performed would be the place of provision. For example:
Repairing computers, warehousing and others where goods are physically made available to the
service provider by the service recipient.

If services mentioned above are provided from a remote location by way of electronic means, then
the location, where the goods are situated at the time of provision of services will be the place of
provision of services.

Place of provision of services rules will not apply in the case of a service provided in respect of
goods that are temporarily imported into India for repairs, reconditioning or reengineering for
re-export, subject to other conditions.

In case of service rendered, which required the physical presence of an individual and the service
provider at the time of performance of services, then the location where the services were
performed will be the place of provision of services. i.e medical, tourism.

Services Relating to Immovable Property

In case of services relating to immovable property, the place where the immovable property is
located or intended to be located will be the place of provision of services.

Some of the services relating to immovable property falling under this category are:

• Services provided by experts and estate agents;

 • Provision of hotel accommodation by a hotel, inn, guest house, club or campsite;

• Grant of rights to use immovable property;

• Services for carrying out or co-ordination of construction work, including architects

or interior decorators;

Services Relating to Events

For service provided by way of admission or conducting of cultural, artistic, sporting, scientific,
educational, or entertainment event, or a celebration, conference, fair, exhibition, or similar
events, the place where the event is actually held will be the place of provision of services.

Service Provided at Multiple Location

In case of performance-based services, services relating to events and services relating to
immovable property which are provided at more than one location, including a location in India,
the location in the taxable territory where the greatest proportion of service provided will be the
place of provision of services.

Provider and Recipient in the Taxable Territory

If the location of the provider of service as well as that of the recipient of service is in the taxable
territory, then the location of the recipient of service will be the place of provision of a service.

Goods Transportation Services

The place of provision of services of transportation of goods, other than by way of mail or courier,
shall be the place of destination of the goods. Also, the place of provision of services of goods
transportation agency will be the location of the person liable to pay tax.

Passenger Transportation Service

The place of provision of service for passenger transportation service is the place where the
passenger embarks on the journey.

Services Onboard a Conveyance

The first scheduled point of departure of that conveyance for the journey is the place of provision
of services for services provided on board a conveyance.
Service Tax on Exports
Services that are deemed to be export of services are exempt from service tax. As per the Service
Tax Rules, any service provided or agreed to be provided shall be treated as export of service if all
of the below mentioned conditions are met:

• The provider of service is located in India, except the State of Jammu & Kashmir.

• The recipient of service is located outside India.

• The service is not specified in the negative list of the service tax act.

• The place of provision of the services is outside India .

• The payment of service has been received by the provider in convertible foreign
exchange.

• The provider of service and recipient of service are not merely establishments of a distinct
person.

Negative List of Service Tax

The negative list of service tax contains activity for which service tax is not applicable. Some of the
items in the negative list of service tax are:

1. Services by the Reserve bank of India;

2. Services by a foreign diplomatic mission located in India.

3. Trading of goods.

4. Any process amounting to manufacture or production of goods.

Place of Provision of Services

Place of provision of services plays an important role in determining the applicability of service tax
on export of services. The place of provision of service is usually the location of service recipient. If
the location of service recipient is not available, then the location of service provided will be as per
the place of provision of services.
Payment in Convertible Foreign Exchange
For a service to be deemed as an export of service, the payment for the service must be received
in convertible foreign exchange. The service recipient maybe required to produce evidence of
receipt of the payment in convertible foreign exchange in order to claim the benefit of rebate.

Not Merely Establishments of a Distinct Person

If a person has one establishment in a taxable territory and another establishment in a non-
taxable territory, services provided by the establishment belonging to the person will not be
treated as export of service.

Service Export from India Scheme

Service exported from India is eligible for reward of duty credit scrips under the Service Exports
from India Scheme (SEIS). Hence, in addition to exemption of service tax, service exporters are
eligible to receive upto 5% duty credit scrip under the Service Export from India Scheme.

Service Tax Refund For Exporters

There are different rebates or refunds available for exporters. There is a list of criteria for
claiming the service tax refund. There is also an exhaustive list of specified taxable services.
Note: Service Tax has been replaced by the Goods and Services Tax (GST) starting 1 July
2017.
Just like income tax, where there are deductions and exemptions of any investment/expenditure
from taxation and refund on the excess tax paid, service tax also consists of expenses that can either
be claimed for rebate or refund. A refund is when you get a reimbursement from the government of
the amount you spent as service tax on various products and services that were exported by you, and
rebate is when you get a discount on the service tax amount you spent on the export.

Refunds & Rebates Available:

Exporters are eligible to avail the following incentives and discounts:
 Duty Drawback to counterbalance Customs, Central Excise Duty and Service Tax paid on
inputs/inputs services used to manufacture export goods;
 Rebate of Central Excise duty paid on exported goods under Rule 18 of the Central Excise
Rules, 2002;
 Rebate on goods allowed clearance for export under bond under Rule 19 of the Central
Excise Rules, 2002;
Refund of Central Value Added Tax (CENVAT) credit of inputs or input services to:
 a manufacturer who clears a final product or an intermediate product for export without
paying duty under bond or letter of undertaking,
 a service provider who provides an output service exported without paying Service Tax,
under Rule 5 of CENVAT Credit Rules, 2004;
 Complete discount of duty paid on excisable inputs or Service Tax and cess paid on all input
services used in providing service exported under Rule 6A of Service Tax Rules, 1994;
 Rebate of service tax paid on taxable services received by an exporter and used for export of
goods;
 Duty-free entitlement for import based on export performance for manufacturers of textile
and leather garments registered with their respective Export Promotion Council - such
manufacturers can import some specified items (to be used for manufacturing garments for export)
without paying duty of value up to 5% of the Free On Board (FOB) value of textile garments or 3%
of the FOB value of leather garments, exported in the previous fiscal year. Similar incentives also
exist for exporters of handicrafts, handlooms, cotton and man-made textile, and leather products
such as footwear, among others.
 Exporters coming under the purview of the Director General of Foreign Trade (DGFT),
Department of Commerce, can avail duty exemption schemes such as Advance Authorisation/Duty
Free Import Authorisations and Export Promotion Capital Goods (EPCG) and incentivisation
schemes such as Merchandise Export from India Scheme and Service/Export from India Schemes.
 Holders of Vishesh Krishi and Gram Udyog Yojana (VKGUY), Focus Product Scheme
(FPS) and Focus Market Scheme (FMS) scrip can pay the service tax on taxable services received
by them by debiting in scrip.
 Along with reimbursement/rebate on service tax, the exporter can also claim Swachh Bharat
Cess and Krishi Kalyan Cess refunds.