Is Service Tax Legal? An Expert's Perspective

Taxes on services vary from state to state. Of the remaining 45 states, four (Hawaii, South Dakota, New Mexico and West Virginia) impose taxes by default, with exceptions only for services specifically exempt by law.

Goods and Services Tax

(GSTIN) details along with a copy of the certificate must be attached. Generally, service charges are exempt from retail sales and use tax.

However, services provided in connection with the sale of tangible movable property are subject to taxation. Transactions that involve both the sale of tangible movable property and the provision of services are generally taxable or exempt from the total amount charged, regardless of whether the charges for the service and the components of the property are indicated separately. The true object test is used to determine the taxability of these transactions. This test examines the purpose of the transaction to determine whether it constitutes an exempt service or a taxable retail sale.

If the purpose of the transaction is to guarantee a service and the tangible personal assets that are transferred to the customer are not critical to the transaction, then the transaction may constitute an exempt service. On the other hand, if the purpose of the transaction is to insure the property it produces, then the entire charge, including any service provided, is taxable. For example, if an artist is commissioned to paint a portrait, then the entire transaction is considered a taxable sale, even though a significant amount of the charge represents the artist's work since the goal is to obtain the finished product. Training program fees, which include charges for required workbooks and tapes, are exempt from tax as service charges since the goal is to obtain training services.

However, charges indicated separately for workbooks and tapes are subject to tax. Additional copies of reports, letters and data communication services including equipment are also subject to taxation. The purpose of exempt transactions is to obtain a service from the seller. However, if the purpose of a taxable transaction is to obtain tangible movable property provided by the seller, then no special or personalized service is involved.

For instance, recovery service charges which include charges for leasing or renting equipment are exempt from tax. But if a taxpayer leases or sells computer equipment to customers without providing information services then such lease or sale is taxable. Information transmitted by tangible means (for example, fax documents) in exchange for a fee is considered to be providing a tax-free service. But if you charge a fee for copies of a faxed document then those charges are taxable.

A person who provides information retrieval services and in connection with this leases or rents computer equipment to its customers must remit use tax to the department on any tangible personal property purchased for resale but used to provide services that are exempt based on cost and price of items used. In cases where both services provided and goods transferred are critical elements of a transaction, degree of customization, uniqueness or specific services provided in relation to product will be taken into account in determining its appropriate tax situation. Any person who provides a taxable service to any person must pay service tax at rate specified in Sec. Any service related to provision, preparation or service by person for consideration of food or other tangible personal property (see 23VAC10-210-930); and is generally taxable except for information customized to needs of particular customer and sold to that particular customer. This provision does not apply to persons who have received such service for purposes other than business or commercial use. Aditya Birla Capital (“the brand”) is unique brand for Aditya Birla Group's financial services business.

The information on this website comes from experts or external service providers which may also include references to any ABCL affiliate. The service tax was first imposed at fixed rate of five percent from July 1, 1994 to May 13, 2003 at fixed rate of eight percent w.e.f May 14 2003 till June 30 2006 and at 10% w.e.f July 1 2006 till June 30 2012 and 12% w.e.f July 1 2012 till June 30 2015 and 14% w.e.f July 1 2015 till June 30 2016 and 15% w.e.f July 1 2016 till June 30 2017 and 15% w.e.f July 1 2017 till June 30 2018 and 18% w.e.f July 1 2018 onwards. It is necessary that common qualification conditions as well as specific conditions of group be met in order to treat provision of any these services as export of services. ABCL or any its employees are not responsible in any way for your use of information when you make any decision or invest or operate through any investment instrument or ABC Companies or any other third party that may dedicate themselves to offering these services. In conclusion, it can be said that service tax is legal in India as long as it meets certain criteria set by government authorities.