The taxability of services or the charge of service tax has been specified in section 66B of the Act. To be a taxable a service should be –
- provided or agreed to be provided by a person to another
- in the taxable territory
- And should not be specified in the negative list.
Agreed to be provided
Services which have only been agreed to be provided but are yet to be provided are taxable.
- Receipt of advances for services agreed to be provided become taxable before the actual provision of service
- Advances that are retained by the service provider in the event of cancellation of contract of service by the service receiver become taxable as these represent consideration for a service that was agreed to be provided.
Determination of point of taxation
The point of taxation is determined in terms of the Point of Taxation Rules, 2011. As per these Rules point of taxation is –
- the time when the invoice for the service provided or agreed to be provided is issued;
- If invoice is not issued within prescribed time period (30 days except for specified financial sector where it is 45 days) of completion of provision of service then the date of completion of service;
- The date of receipt of payment where payment is received before issuance of invoice or completion of service.
Taxable territory has been defined in section 65B of the Act as the territory to which the Act applies i.e. the whole of territory of India other than the State of Jammu and Kashmir.
Service should not be specified in the negative list
As per section 66B, to be taxable a service should not be specified in the negative list. The negative list of services has been specified in section 66D of the Act.