Service Tax Exemption for Small Scale Service Providers

Service tax exemption for small scale service providers were introduced in the year 2005 to boost MSME businesses in India. Initially in 2005, small scale service providers with an annual taxable service value of less than Rs.4 lakh were exempt from service tax. In 2007, the limit was raised to Rs.8 lakhs and to Rs.10 lakhs in the year 2008. In this article, we look at service tax exemption in detail.

Service Tax Exemption

The Central Government exempts taxable services of aggregate value not exceeding Rs.10 lakhs in any financial year from the whole of service tax leviable under Section 66B of the Finance Act, 2013. To be eligible for service tax exemption, the service provider must satisfy the following conditions in addition to not exceeding the aggregate value threshold:

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Aggregate Value of Taxable Services

Aggregate value not exceeding Rs.10 lakhs in any financial year from the whole of service tax leviable under Section 66B of the Finance Act, 2013. Aggregate value is the sum total of value of taxable services charged in the first consecutive invoices issued during a financial year but does not include value charged in invoices issued towards such services which are exempt from whole of service tax leviable thereon under Section 66B of the Finance Act.

Not Available for Services Provided under Brand or Trade Name

Service tax exemption is not applicable to taxable services provided by a person or business under a brand name or trade name, whether registered or not. So, those businesses that offer services under a name that is trademarked, cannot avail service tax exemption. "Brand name" or "trade name" means a brand name or trade name, whether registered or not, such as a name or a mark, symbol, monogram, logo, label, signature, or invented word.

Availing Exemption is Optional

The provider of a taxable service has the option NOT to avail the service tax exemption and begin paying service tax even while under the aggregate value threshold. However, once the option to avail service tax exemption has been foregone, it cannot be availed again in the same financial year.

CENVAT Credit

The provider of taxable service cannot avail the CENVAT credit of service tax paid on any input services, for which service tax exemption is claimed. Further, if a service provider opts for this exemption such credit is not admissible only in relation to inputs or input services but also in relation to capital goods input. Input credit would be available only from the date the service provider starts paying service tax.

Multiple Premises

Even if a service provider providers services from multiple premises, service tax exemption is available, provided the aggregate value does not exceed Rs.10 lakhs in a financial year.

Service Tax Registration

All service providers in India are required to obtain service tax registration once the annual aggregate taxable services revenue exceeds Rs.9 lakhs. Service tax payment or liability accrues once the aggregate value exceeds Rs.10 lakhs.