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The last couple of decades have seen explosive growth of services in India – logistics, IT, accounts, consulting, etc. The Government taxes every transaction that happens in the realm of services, through the Service Tax. Today, this is separate from the Value Added Tax (VAT) on sales. However, the proposed Goods and Services Tax (GST) hopes to bring both these streams of economic activity under a common umbrella.
For instance, if you are a Consultant having a turnover in excess of Rs.8 lakh in a year, you need to pay Service Tax of 12.36% on every bill you raise on your clients. Typically you would bill this Service Tax separately to the client, and pay the same to the Government. Any Service Tax that you pay to your vendors (for instance on your office rent) would be deductible against your liability.