Concept of Abatement

Tax Practical
Practical Service Tax

#### What is Abatement?

We know that normal rate of service tax is 15%

However, sometimes service tax is charged at lower rate.

This is because abatement has been notified by government.

Abatement means discount or reduction on service tax rate as notified by governmenttement

Example

General Rate of Service tax is 15%

Suppose there is 60% abatement notified by government it means

Service tax  is calculated as follows

 Normal Rate N ormal Rate with 60% Abatement Procedure Method 1 Value of Service 100000 Value of Service 100000 Service tax 15% 15000 Less Total Bill Amount 115000 Abatement 60000 Abated Value 40000 Service tax 6000 (15% on Abated Value) Total Bill Amount 106000 Method 2 Value of Service 100000 Service tax 6% 6000 (15*40%=6%) Total Bill Amount 106000

#### What are Exemptions?

While in case of abatement, Service tax is levied at lower rate,

in case of exemption,service tax is not charged at all

Hence exemption is scheme of government through which Service is made tax free

Both ABATEMENT and EXEMPTIONS are notified by Government by issuing notifications

 Normal Rate Normal Rate With Exemption Value of Service 100000 Value of Service 100000 Service tax 15% 15000 Service tax (Exempt) 0 Total Bill Amount 115000 Total Bill Amount 100000

#### Difference

 Abatements Exemptions Service tax is charged at lower rate Service tax is not charged at all It is introduced by government by issuing Abatement notification It is introduced by government by issuing Exemption notification

Lets study abatements first in detail