Service tax
Topic: Taxation: Direct and Indirect Taxes, GST and Global Tax Issues · NCERT: Class 12, Ch 2 "National Income Accounting"; Class 12, Ch 5 "Government Budget and the Economy"
Meaning
Service tax was a Union indirect tax on services, such as telecom, banking and restaurants. It began in 1994 on the advice of the Chelliah committee. At first only listed services were taxed. From 2004, firms could offset excise credit and service-tax credit against each other. In 2012, India moved to a negative list: every service was taxed except those on the list. Service tax was subsumed into GST in 2017. NCERT treats it as a product tax, paid per unit of output.
Example
Before 2017, a restaurant bill could carry both the Centre's service tax and the state's VAT. Neither gave full credit for the other, so tax fell on tax (cascading). Under GST, one tax with input tax credit covers the bill.
Don't confuse with
- Excise duty: charged on the manufacture of goods, while service tax was charged on services. Both taxes were later merged into GST.