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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
