How different is Service tax from VAT ?

One of the primary sources of government revenue is “tax” that helps in smooth functioning of a country’s economy. Tax is imposed on physical as well as non-physical items and this is where indirect taxes comes into the picture; they are valid for both goods and services.

VAT, customs duty, excise duty, and CST are charged on goods while service tax is imposed on services. But do you know which of these taxes contribute to a country’s economy ? The answer is : among all these taxes, service tax and VAT contribute to a large portion of the government’s revenue, so that the economy remains financially stable.

Knowing the difference between VAT and service tax is essential for everyone to ensure you pay your taxes without any challenges. Below are some of the prime differences between VAT and service tax.

Difference between VAT and Service tax :

  • VAT is applicable on physical products like commodities, whereas service tax is applicable on non-physical items like services.
  • Value Added Tax is the abbreviated form of VAT and as the name says, it is a tax imposed on value addition of the product through different stages of production and trading of goods. Service tax is charged only on services provided.
  • The nature of tax in the case of VAT is multipoint, and in the case of service tax is single point.
  • VAT may vary depending on the commodity, while service tax levied is the same for all services.
  • VAT is applicable within the jurisdiction of a state and varies from state to state, but service tax is applicable all over the country, subject to certain exceptions.
  • Though consumers bear the burden of value added tax, it is paid to the tax authorities by the seller. In the case of service tax, it is imposed on the service receiver.
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Things You Should Know About VAT and Service Tax

As a law-abiding citizen of any country, you are required to pay taxes—be it VAT or service tax, whenever and wherever applicable. VAT system has been adopted by more than 160 countries across the globe.

A little-known fact is that not every restaurant or eatery is liable to impose service tax on the customers. Only food joints that serve beverages and food, and have air condition facility come under the roof of service tax. Service taxes are only collectable on the services provided, and not on the entire bill.

In short, service tax is an indirect tax imposed on services provided to the consumer. These services also include assistance in work, professional assignments, or letting others do intangible work for you.

Value added taxes are also an indirect tax but are imposed on products and goods that are part of the same state government that the consumer is making the purchase in. Both these taxes are under the control of the Central Board of Excise and Customs (CBEC).


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Also go through our popular blog post : GST : What is impact of GST on the common man !


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