Sales Tax vs Service tax — Explained!

Service Tax & Sales Tax

Are you also perplexed about what to charge when, Service Tax or Sales Tax? If you are, then you are not the only one facing this confusion. Taxation being a complicated subject often confusing entrepreneurs, especially from startups, about the chargeability of Sales Tax and Service Tax.

Here is everything you need to know about the difference between the sales tax and service tax, and what to charge when.

What is Service Tax?

Service Tax is a form of indirect tax, levied on the services provided by any entity. In simple language, meaning of providing services is providing assistance in any work, completing any professional assignment or rendering intangible benefits to others.

It is governed by the Finance Act, 1994.

When to register under the act?

If the annual turnover of the entity is more than Rs. 9 Lakhs, then the service provider is compulsorily required to get itself registered under the act and charge service tax on services provided if the turnover exceeds Rs 10 Lakhs.

When is service tax charged?

Service Tax is normally charged at the time of rendering services. However, there may be situations where service tax is charged before rendering services or after the completion of service.

However, one should always remember that chargeability arises when services are rendered, while the rate is determined at the time of payment by service receiver.
Confused about Taxes?

What is Sales Tax?

Sales tax is a form of an indirect tax levied on the sale of a commodity, which is produced and sold for the first time. If the product is sold subsequently without being processed further, it is exempt from being charged again.

It is governed by Central Sales Tax Act, 1956. Though it is governed by a single central act, the chargeability may vary from state to state.

Is it compulsory to register under the act?

Registration of dealer is compulsory if he affects an inter-state sale transaction.

When is sales tax charged?

Sales tax is charged when the following conditions are fulfilled-

  • Existence of ‘goods’
  • Sale of ‘goods’
  • From one state to another i.e. the buyer and seller must be situated in two different states.

When the following conditions are fulfilled, sales tax becomes chargeable.

Are the rates of charge uniform ?

Service Tax: The present rate of service tax is 15 %, which is uniformly levied on all services except for those included in the Negative List. This list consists of 17 specific services which are exempted from service tax.

Sales Tax: Unlike Service Tax and VAT, Sales Tax does not have any uniform rate. It varies from state to state and good to good.

Hope this proves to be useful to all the tax payers out there!!!

About the Author

This article has been authored by Ayushi Sharma, Founding Intern at LegalNow.