Dr. Sanjiv Agarwal

Vide Notification No. 6/2005-ST dated 1.3.2005, a threshold exemption scheme was introduced by Finance Act, 2005 (effective from 1.4.2005) exempting from service tax aggregate value of taxable services not exceeding four lakh rupees received by the service provider during a financial year.

Accordingly, following are the salient features of the scheme –

  • Exemption limit to benefit genuine small service providers
  • Threshold exemption limit prescribed at Rs 4 lakh of value of taxable services;  Rs 8 lakh w.e.f. 1-4-2007 and  Rs 10 lakh w.e.f. 1-4-2008
  • The scheme is optional.  Once opted, the scheme cannot be changed during that year
  • Aggregate turnover to be considered in which —

(a) All services will be taken together

(b) All premises will be taken together

  • Limit of Rs 4 lakh or Rs 8 lakh or Rs 10 lakh does not apply separately for each premises/ services
  • Exemption is per service provider, not per service
  • Value of taxable service only shall be considered
  • To be eligible, it should be satisfied that aggregate value of all taxable services rendered by service provider from one or more premises not to exceed Rs 4 lakh or Rs 8 lakh or Rs 10 lakh, as the case may be, in previous financial year.
  • Aggregate value of Rs 4 lakh or Rs 10 lakh shall mean (upto 31-3-2012) as under:

(a) Sum total of first consecutive payments received during financial year towards the value of taxable services rendered till the amount equals to Rs 4 lakh or Rs 8 lakh or Rs 10 lakh, as the case may be.

(b) Payment received towards exempted services will not be considered for reaching this limit.

(c)  Preceding financial year’s taxable services will be considered for eligibility.

  • Aggregate value w.e.f. 1-4-2012 shall mean first clearances upto Rs 10 lakh in terms of invoices raised or to be raised and not on the basis of payments. W.e.f. 1-7-2012, aggregate value means sum total of value of taxable services charged in the first consecutive invoices issued during a financial year except in cases of wholly exempt services.

Exemption Scheme at a Glance

Particulars From 1.4.2005 to 31.3.2007 W.e.f. 1.4.2007 W.e.f.1.4.2008 W.e.f. 1-7-2012
Relevant Notification 06/2005-ST, dated 1-3-2005 04/2007-ST, dated 1-3-2007 08/2008-ST, dated 1-3-2008 33/2012-ST,dated 20-6-2012
Application w.e.f. 1.4.2005 w.e.f. 1.4.2007 w.e.f. 1-4-2008 w.e.f. 1-7-2012
Threshold limit Rs 4 lakhs Rs 8 lakhs Rs  10 lakhs Rs 10 lakhs
Registration requirement underService Tax (Registration of Special Category of Persons) Rule, 2005 Rs 3 lakhs Rs  7 lakhs Rs 9 lakhs Rs  9 lakhs
Qualifying financial years for claiming exemption 2004-   05(for 2005-06)2005-   06(for 2006-07) 2006-07 (for 2007-08) 2008-09 (for 2009-10) 2011-12 (for 2012-13)

 Recent Amendment in Scheme

Amendment w.e.f. 1.4.2012

Vide Notification No. 5/2012- ST dated 17.3.2012, w.e.f. 1.4.2012, amendment had been made in the meaning of ‘aggregate value’ to the effect that first clearances up to Rs. 10 lakhs will be constituted in terms of invoices raised or to be raised and not on the basis of payments received to determine the ‘aggregate value’.

W.e.f. 1.4.2012, ‘aggregate value’ shall mean the sum total of value of first consecutive invoices issued or required to be issued, as the case may be, during a financial year, but does not include value charged in invoices towards such services which are exempt from whole of service tax leviable thereon under section 66 of the Finance Act under any other notification.

Amendment w.e.f. 1.7.2012

Vide Notification No. 33/2012-ST dated 20-6-2012, Notification No. 6/2005-ST has been superceded and new scheme announced.  W.e.f. 1-7-2012, ‘aggregate value’ means the sum total of value of taxable services charged in the first consecutive invoices issued during a financial year but does not include value charged in invoice issued towards such services which are exempt from whole of service tax leviable thereon under section 66B of the said Finance Act under any other notification.

Receiver cannot avail the benefit of exemption scheme

The exemption scheme is meant only for service providers. The exemption cannot be availed by service providers who are not liable to pay service tax on the services rendered by them. Similarly, service receivers who avail the services but are person liable to pay the tax under Section 68(2) as a special case are not the service providers. As such, service receivers cannot claim the benefit of exemption scheme. Thus, this scheme will not be of any benefit to either the service receiver or the service provider in such cases. Uptil 30 June, 2012,   these  included mutual fund distribution, services rendered from outside India, life insurance,  general insurance auxiliary services, recipient of goods transport service etc.

The exemption scheme does not apply to person liable under section 68(2) of the Finance Act, 1994 or person other than service providers as specified under rule 2(1)(d) of Service Tax Rules, 1994. To avail the exemption, the person should be a service provider only. However, CENVAT credit can be taken as per rules subject to fulfilment of the specified condition of being an input service.

Thus, exemption scheme meant for small service providers does not applied to following persons paying service tax under reverse charge method —

—        Recipient of service

—        Importers of service

—        Input service distributors

—        Insurance agents

—        Mutual fund AMC’s

—        Specified consignors or consignee  for GTA services

—        Sponsors for sponsorship services

—        Service providers under franchise or brand.

The reverse charge mechanism has been expanded w.e.f.  1 July 2012. As such, the service recipients of services such as arbitral tribunal, legal services, support services provided by the Government, renting of vehicles, works contracts, manpower supply, security services, director’s service etc covered under reverse charge as per Notification No 30/2012-ST dated 20.6.2012 shall have to pay service tax and in such cases, benefit of exemption scheme will not be available to service receiver.

The service receiver is only liable to pay service tax and by doing so, he does not become service provider. The liability to pay service tax has only been shifted.

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  1. pushkar says:

    I am a service receiver. A vendor has provided me certain service (Labour charges for maintenance). However vendor has not charged service tax, claiming he is a small service provider. However he has not furnished any certificate or proof to that effect, just a self-declaration. Now do we take the vendor’s word as sufficient, or should we deduct full service tax from the invoice?

  2. vikash says:

    Dear Sir,
    My employer’s receipts will reach 9,85,200 for FY 2012-13 but will not cross 10 lakhs. We are not charging service tax to our clients because it was pre-calculated that receipts will not cross 10 lakhs

    While efiling for July-Sept2012 period, i have not mentioned exemption notification number and entered value of taxable service as 0 (nil) as well as service tax collected as 0(nil) as suggested by external service tax professional to file a nil return.

    Do we need to rectify filing?

  3. Sunil Chowdhary says:

    Vinod Nyayadhish in case you are an individual or a non business entity having turnover upto Rs.10 lakhs, in certain cases you are out of the reverse charge nett wherever they have specified individual and business entities with , 10 lakh turnover.

  4. Vinod Nyayadhish says:



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June 2021