Last updated: December 17th, 2019 5:10 PM

Service Tax Applicability

Service tax is applicable in India on all taxable services provided by an individual or entity. 'Service’ has been defined in the Service Tax Act as any activity provided for consideration and carried out by a person for another. Further, service tax is not applicable for any activity that results only in transfer of title of goods or a transfer, delivery or supply of goods - which is deemed to be a sale of gods or only a transaction in money or a service provided by an employee to an employer or fees payable to a court or a tribunal. In this article, we look at service tax applicability in detail.

Taxability of Service

For a service to be taxable in India, it must conform to the following three standards set in the service tax  regulations:

• Service was provided or agreed to be provided by a person to another.
• Service is or was or to be provided in a taxable territory (In India).
• The service should not be specified in the negative list (Services in negative list are exempt from service tax).

Service Agreed to be Provided is Taxable

If a service was provided, then the service provider become liable to pay service tax. On the other hand, as per the regulation, a service provider is also liable to pay service tax on service agreed to be provided. So, services which have only been agreed to be provided but are not yet provided are also taxable . Hence, receipt of advances for services agreed to be provided become taxable, on payment of the advance fee. In case advances are retained by the service provider, then the service provider becomes liable to pay service tax, even in the event of cancellation of contract of service.

Service Provided in Taxable Territory

Taxable territory has been defined in section 65B of the Service Tax Act, as the territory to which the Act applies. Service tax act applied to the whole of India, other than the State of Jammu and Kashmir. Complexities in determining taxable territory has been addressed in the Place of Provision of Services Rules, 2012.

Service Not in Negative List

For a service to be a taxable service, it should not be specified in the negative list. Negative list contains a list of all services that are exempt from service tax.