All you need to know about what is and how to pay service tax in India


Service tax in India was introduced in 1994. The tax for the first time was levied on telephone services and services relating to insurance, other than life insurance. It was also levied on the services provided by Stock Brokers because service constitutes a significant part of the country’s GDP. The number of services brought under service tax has increased over the years. As of 2011, 119 services are taxable in India.

The initial rate of service tax was 5% of the gross value of the service. This was increased to 8% by the 2003 financial budget. In 2004, it was increased to 10% and at present service, tax is 12% with an additional 2% cess on education. Section 66 of the

Finance Act of 1994 details the authority that can charge service tax in India.

Who pays service tax?

It is usually the service provider who has to pay service tax. On the other hand, the government can also direct a person, other than the service provider, to pay for it. The service receiver is asked to pay service tax in situations like simplifying the administrative process, or escalation of the cost of collection.

If you are an insurance agent selling insurance policies, you are not levied the tax. Instead, the insurance company incurs the service tax.

If you buy a service from a service provider located abroad, the service tax is to be paid by you not the seller based outside India.

If you are a consignor or consignee of goods carried by the Goods Transport Agencies, you are liable to pay service tax under a special category mentioned under notification No. 24/2005-ST dated 7.06.2005.

How much is the service tax?

Service tax was summed at 15% in June 2016 under Section 66 of the Service Tax Act. There was also an additional 0.5% Krishi Kalyan cess and a 0.5% Swach Bharat cess.

The calculation is done on the charges that you paid or received for a service you bought or used. While most of the services on the list are taxed following the same rule, there are also some exceptions.

  • In the case of air transportation, there is an exemption of 60% on air transportation.
  • There is a 70% exemption on some services offered by tour operators.
  • There is a 30% exemption on chit funds.

There are many more under the exemption list. Service tax is charged on the percentage amount left after exemption.

How to pay service tax in India?

The first step to pay service tax in India is that you submit an application to the Superintendent of Central Excise in Form ST-1 and register yourself. You must apply within a time of 30 days from the date from which the service tax is levied. You can also register within 30 days of the commencement of your business. You can consider whichever of these two conditions is later to apply for registration to pay service tax. The good news is that you don’t have to pay any registration fee.

In case you are applying for more than one taxable service, you can do that in a single form. Do enclose a copy of your PAN card, address proof, partnership deed, company constitution, etc. along with your application form. Usually, you get the registration certificate within seven days of filing your application. If the business has been sold or acquired by another party, they need a fresh registration.   

If you are a registered assessee and start a new service for the premises of the old one, you need not apply for re-registration. You can fill out Form S.T.1 and submit it to the jurisdictional Superintendent for making amendments to the existing information.

Self-assessment and payment

You can do a self-assessment of your taxes and file tax returns with the jurisdictional Superintendent of Central Excise as per rules mentioned in Section 70, Finance Act, 1994.

Many think that service tax is paid on the amount billed to a customer of a taxable service. That is not right. You need to pay service tax for the value of the taxable service that you provided during a stipulated period.

In the case of corporates, service tax must be paid for a calendar month. The service tax must be paid on or by the 5th of the next month. For non-corporate services, tax is payable every quarter. Service tax must be paid on the 5th of the month following the quarter. For each financial year, a non-corporate taxpayer will pay service tax in all four quarters of the year.  

Service tax is paid through the TR6 challan in the designated banks. You can also pay service tax via a cheque. There is also an interest and penalty levied in the case of delay or failure to pay service tax on time.

Can service tax be paid online?

You can also file your service tax online. For online tax payment, you must first register yourself in the CBIC-GST portal. To pay service tax online, you will also need to enter the 15-digit code allotted by the jurisdictional Commissionerate. Once the code validity is established, all your details like name and address will be displayed on the page. You can now begin the process of online tax payment.

From the ‘Services’ menu on the website, you can start the process of online payment of service tax. You can then fill in the necessary details and generate the Challan which remains valid for 15 days. To make the online tax payment, you will be redirected to the ICEGATE portal.

The ICEGATE portal will display your unpaid challan. Select the challan for online tax payment. You can make a digital transaction and pay service tax online. You can also take a printout of the challan and make the payment at the nearest bank branch.

While making an online tax payment, always wait for the confirmation message displayed on the portal. This means that your online service tax payment was successful.

The words tax or service tax baffles many people. You just need the right information to do away with myths and become a pro at filling your tax returns including online tax payment. You can read and learn all your need to know about service tax and its payment procedures from many reliable online sources like the Piramal Finance website.