CA Ayush Garg

CA Ayush Garg

Service sector is gaining much more importance day by day when it comes to revenue collection, contribution to GDP and employment. Service sector constitutes for more than 50% of Nation’s GDP. Service sector in India not only provides large scale employment to both skilled and unskilled personnel but also significantly contributes towards foreign exchange collection. Telecom, Insurance, banking, Information Technology are the major contributors in service sector industry,

GST Impact

No double taxation

In the current regime there are disputes whether a particular supply is a supply of good or service e.g. Work Contract, Restaurant etc. In such scenario because of ambiguity, assesses were required to pay taxes both VAT and Service Tax on it. In GST regime, both goods and services are treated equally and this double taxation is removed.

Multiple rates for Services

In the earlier regime, Service tax rate was 14% and additional Swatch Bharat Cess and Krishi Kalyan Cess of 0.5% each is levied on provision of taxable service. Under GST general rate of services is 18%. Few services are also taxable at 28%. However keeping in mind the interest of general public, necessity services are also taxed at 5% and 12%.

Services in Jammu and Kashmir is now taxable

Service Tax was not applicable in Jammu and Kashmir. However after the introduction of GST in Jammu and Kashmir, now services rendered in Jammu and Kashmir will be taxable which was earlier out of ambit of Service Tax


There was a concept of centralized registration in Service Tax but no such provision is in GST. Under GST service providers is required to take registration in every state from where he is providing service. Burden on service providers w.r.t registration and further compliances is increased

Initially when the GST law was introduced, every service provider who is making inter-state supply is required to take registration under GST Act irrespective of his turnover. However keeping in mind the interest of small service providers, CBEC later on through Notification No. 10/2017- Integrated Tax dated 13th October 2017 exempts service providers, having turnover upto 20 lakhs and making inter-state supplies, from taking registration under GST Act.

Seamless flow of Input Tax Credit

Now Service Providers are allowed to avail ITC paid on inputs and capital goods. In the earlier regime they were not allowed to take credit of VAT paid on Inputs and capital goods.  Therefore now the cost of Inputs and Capital Goods will be reduced for service providers.

More burden of Compliance

Service Tax return was required to be filled half yearly but in GST regime, 3 returns are required to be filled per month. Annual return is also required to be filled in addition to monthly return. In crux, now service providers are required to file 37 returns per state in comparison with 2 returns on PAN India basis.

For example if a service provider is having offices in 10 states. In the earlier regime if he is having centralized registration, Service Tax (ST-3) is required to be filed half yearly. Total number of return in a year will be 2. In GST regime 37 returns per state is required to be filed. Total number of returns to be filled will be 370. In comparison of 2, 370 returns will lead to too much compliance burden.


If we try to conclude we can say that GST will have mixed impact on service sector. It is beneficial in some aspect but at the same time it is creating hurdle in ease of doing business. It is beneficial in terms like seamless flow of credit, avoidance of double taxation but have increased lot of compliance burden.

(Author can be reached at [email protected])

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October 2021