Definition of 'Service Tax'

Definition: Service tax is a tax levied by the government on service providers on certain service transactions, but is actually borne by the customers. It is categorized under Indirect Tax and came into existence under the Finance Act, 1994.


    Service tax was an indirect tax levied by the government on services offered by service providers. Introduced under Section 65 of the Finance Act, 1994, service tax was on July 2017 replaced by Goods and Services Tax (GST), which subsumed the various types of indirect taxes.
    Service tax was paid to the government in exchange for different services received from service providers. Though the tax was paid by service providers, it was recovered from customers who bought or availed of the taxable services. It was set, more recently, at 15% for transactions that occurred on or after June 1, 2016.

    Rollout of service tax: Service tax had been introduced in Union Budget 1994, and rolled out with effect from July 1, 1994. Following this, services that were included under the service tax were increased gradually from 1994. Services provided by air-conditioned restaurants, lodging (both long and short term), guest houses and other amenities were included under the tax. Going by regulations, the tax was levied on companies as well as individual service providers. While companies paid it on the basis of accrual, individuals paid the tax via cash. However, it was paid only if the total value of the service provider by an entity exceeded Rs 1 million in a given financial year. The erstwhile state of Jammu & Kashmir was exempt from this addition to the service tax rules.