Service tax is a type of indirect tax, which is pertinent to the services that are taxable. This levy came into effect as the Central Government looked for a simple option that is clear in nature and can create revenue for the country in a simple manner. It was launched in India in 1994 according to Chapter V of the Finance Act, 1994.Service Tax in IndiaOver the last few years, service tax has been imposed on different services. Its features are not similar to VAT, which is imposed on commodities and merchandises. It is levied on different categories of services that are offered by financial institutions like stock exchange, banks, transaction providers, colleges, and telecom providers. Banks were the first to impose service tax on their customers. From the time of their commencement, they frequently expressed service costs in the form of processing charges. The duty of collecting the levy is entrusted with the Central Board of Excise and Customs (CBEC), which is an authority under the Ministry of Finance.
This authority devises the tax system in India.For the rationale of imposing it, the cost of any taxable service has to be the gross amount fixed by the service provider for the service provided by him.Rate of Service TaxIn India, service tax first came into existence with effect from July 1, 1994. Every service provider in India, apart from those in the state of Jammu and Kashmir, has to pay this levy. At the outset, just three services were grouped under its net. The rate was 5% at that point. Slowly, more services were brought under the realm of this duty. The rate was raised from 5% to 8% with effect from May 14, 2003. The rate was again hiked to 10% from 8% on September 10, 2004. In addition to this, 2% education cess on the service tax amount was also initiated. In the Union Budget of Government of India for fiscal 2006-2007, the service tax rate was upped from 10% to 12%. On February 24, 2009, with the purpose of offering reprieve to the business and commerce sector staggering under the brunt of economic slump, the rate was lowered from 12 per cent to 10 per cent.