Common Service Tax Mistakes

Service tax registration and filing of service tax returns is mandatory for those service providers providing taxable services of over Rs.10 lakhs per annum. Incorrect or late filing of service tax compliance could lead to fines and penalties. In this article, we look at common service tax mistakes that could be avoided by a business.

Top Service Tax Mistakes

https://www.youtube.com/watch?v=ebmzT2h1wW0

In the above video, Mr. S. Jaikumar of Swamy Associates explains some of the top mistakes committed by service tax assesses in service tax compliance.

Non-filing or Late Filing of Service Tax Return

Non-compliance with service tax return filing is one of the top mistakes committed by service tax assesses. Entities having service tax registration are required to file the service tax return on 25th of April and 25th of October each year. Late filing penalty of Rs.500 is applicable for delay of upto 15 days, Rs.1000 penalty is applicable for delay of upto 30 days and Rs.1000 + Rs.100 per day penalty is applicable for delay of more than 30 days. Failure to file the service tax return on time could result in a fine of upto Rs.20,000.

Late Payment of Service Tax

Service tax payments collected by a business must be remitted with the Government every month or every quarter. Failure to make service tax payments on time could lead to the accrual of interest and penalties. Also, the recently introduced Finance Act has made certain amendments to penalties on late payment of service tax payments to make the process non-discriminatory. Hence, it is important to make service tax payments on time to avoid penalty and maintain proper compliance.

Adoption of Wrong Service Tax Rates

The service tax rate has been changed from 12.36% to 14% with effect from 1st June 2015. Thus, it is important for businesses to adopt the new rates on the accounting systems, charge the correct service tax rate to the customer and remit correct service tax payments to the Government. Further, certain activities enjoy exemptions under service tax rules. It is important for the businesses to be aware of such notifications and charge the correct service tax payment.

Incorrect Availment of Service Tax Exemption

https://www.youtube.com/watch?v=D6PqcdPfoZA

Small service providers providing taxable services of less than Rs.10 lakhs per annum are not liable to pay service tax. However, if the service provider begins paying service tax before crossing the Rs.10 lakhs service tax exemption threshold, then they are liable to pay service tax starting from that point. Hence, it is important for startups and small service providers to be aware of the regulation and claim the correct service tax exemption.

Return Filing under Incorrect Category

Service tax assesses must file a service tax return for all categories of service provided as per the service tax rules. It is also important to mention all the activities performed by the assessee in the service tax registration. Incorrect service tax registration or return filing could result in denial of some benefits which may be available in the form of abatement or exemption. Hence, it is important for the service tax assessee to obtain registration and file service tax return under the correct category.

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