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SERVICE TAX RATE IN INDIA

SERVICE TAX RATE IN INDIA

Finance Minister Arun Jaitley in his Budget had proposed to raise service tax from 12.36 percent (including education cess) to 14 percent.

The proposal takes effect from June 1.The tax is levied on all services, expect a small negative list.

Some of the key services that will attract higher tax and hence become costlier are:
-Railways, airlines, banking, insurance, advertising, architecture, construction, credit cards, event management and tour operators.
-Mobile operators and credit card companies have already started sending messages to subscribers conveying the increase in service tax rate which will have a bearing on the bills.
According to railway ministry officials, fares for First Class and AC classes in passenger trains, besides freight charges, will go up by 0.5 percent from June 1. “Currently, 3.7 percent service tax is levied on train fares for AC Class, First Class and freight. This will go up to 4.2 percent from June which means the rise is only 0.5 percent,” the official said. Currently, there is abatement of 70 percent on passenger services. Jaitley had proposed to raise the service tax rate to 14 percent to facilitate a smooth transition to the Goods and Services Tax (GST) regime, which the government wants to roll out from April 2016. Once implemented, GST will subsume service tax, excise and other local levies. “To facilitate a smooth transition to levy of tax on services by both the Centre and the States, it is proposed to increase the present rate of service tax plus education cesses from 12.36 percent to a consolidated rate of 14 percent,” Jaitley had said in Budget speech. Education cess, which is levied on service tax, will be subsumed in the service tax rate with effect from June 1. Although the Budget also proposed a 2 percent Swachh Bharat cess on selected services, the government is yet to come out with a notification in this regard.

In respect of certain services like money changing service, service provided by air travel agent, insurance service and service provided by lottery distributor and selling agent the service provider has been allowed to pay service tax at an alternative rate subject to the conditions as prescribed under rule 6 (7), 6(7A), 6(7B) and 6(7C) of the Service Tax Rules, 1994. Consequent to the upward revision in Service Tax rate, the said alternative rates shall also be revised proportionately. The new rates are summarized in the table below:

Service Tax Rate Earlier 12.36% New 14.00% (all inclusive)
Service Old Rate New Rate
Air Travel Agent
Domestic booking 0.6 per cent 0.7 per cent
International booking 1.2 per cent 1.4 per cent
Life insurance
First year premium 3 per cent 3.5 per cent
Subsequent year premium 1.5 per cent 1.75 per cent

SERVICE TAX RATE IN INDIA

Negative List
The changes proposed in the Negative List in Section 66 D are as follows:
(i) The Negative List entry that covers “admission to entertainment event or access to amusement facility” is being omitted [section 66D (j)]. Consequently, the definitions of “amusement facility” [section 65 B (9)] and “entertainment event” [section 65B(24)] are also being omitted. The implication of these changes are as follows,- (a) Service Tax shall be levied on the service provided by way of access to amusement facility providing fun or recreation by means of rides, gaming devices or bowling alleys in amusement parks, amusement arcades, water parks and theme parks. (b) Service tax to be levied on service by way of admission to entertainment event of concerts, pageants, musical performances concerts, award functions and sporting events other than the recognized sporting event, if the amount charged is more than Rs. 500 for right to admission to such an event. However, the existing exemption, by way of the Negative List entry, to service by way of admission to entertainment event, namely, exhibition of cinematographic film, circus, recognized sporting event, dance, Page | 4 theatrical performance including drama and ballet shall be continued, through the route of exemption. For this purpose a new entry is being inserted in notification No. 25/12-ST. The term recognized sporting event has been defined in the proposed amendment in the said notification.

(ii) The entry in the Negative List that covers service by way of any process amounting to manufacture or production of goods [section 66D (f)] is being pruned to exclude any service by way of carrying out any processes for production or manufacture of alcoholic liquor for human consumption. Consequently, Service Tax shall be levied on contract manufacturing/job work for production of potable liquor for a consideration. In this context, the definition of the term “ process amounting to manufacture or production of goods” [section 65 B (40)] is also being amended, along with the Negative List entry [section 66D (f)], with a consequential amendment in S. No. 30 of notification No. 25/12-ST, to exclude intermediate production of alcoholic liquor for human consumption from its ambit.

(iii) Presently, services provided by Government or a local authority, excluding certain services specified under clause (a) of section 66D, are covered by the Negative List. Service Tax applies on the “support service” provided by the Government or local authority to a business entity. An enabling provision is being made, by amending section 66D (a)(iv), to exclude all services provided by the Government or local authority to a business entity from the Negative List. Consequently, the definition of “support service” [section 65 B (49)] is being omitted. Accordingly, as and when this amendment is given effect to, all services provided by the Government or local authority to a business entity, except the services that are specifically exempted, or covered by any another entry in the Negative List, shall be liable to service tax . (Clauses 105 and 107 of the Bill refers) The above changes in the Negative List shall come into effect from a date to be notified later, after the enactment of the Finance Bill, 2015.

SERVICE TAX RATE IN INDIA

Review of Exemptions :
Exemption presently available on specified services of construction, repair, maintenance, renovation or alteration service provided to the Government, a local authority, or a governmental authority ( vide S. No. 12 of the notification No. 25/12-ST ) shall be limited only to,-
(a) a historical monument, archaeological site or remains of national importance, archeological excavation or antiquity; (b) canal, dam or other irrigation work; and (c) pipeline, conduit or plant for (i) water supply (ii) water treatment, or (iii) sewerage treatment or disposal. Exemption to other services presently covered under S. No. 12 of notification No. 25/12-ST is being withdrawn.

-Exemption to construction, erection, commissioning or installation of original works pertaining to an airport or port is being withdrawn (S. No 14 of the notification No. 25/12-ST). The other exemptions covered under S. No. 14 of notification No. 25/12-ST shall continue unchanged.

-Exemption to services provided by a performing artist in folk or classical art form of (i) music, or (ii) dance, or (iii) theater, will be limited only to such cases where amount charged is upto Rs 1,00,000 for a performance (S. No 16 of notification No. 25/12-ST).

-Exemption to transportation of food stuff by rail, or vessels or road will be limited to food grains including rice and pulses, flour, milk and salt. Transportation of agricultural produce is separately exempt, and this exemption would continue (S. Nos. 20 and 21 of notification No. 25/12-ST).

-Exemptions are being withdrawn on the following services: (a) services provided by a mutual fund agent to a mutual fund or assets management company, (b) distributor to a mutual fund or AMC, (c) selling or marketing agent of lottery ticket to a distributor. Service Tax on these services shall be levied on reverse charge basis. (S. No 29 of notification No. 25/12-ST).

-Consequent to imposition of Service Tax levy on service by way of manufacture of alcoholic liquor for human consumption, an amendment is being made in the entry at S. No. 30 of notification No. 25/12-ST to exclude carrying out of intermediate production process of alcoholic liquor for human consumption on job work from this entry. (S. No 30 of notification No. 25/12-ST).

SERVICE TAX RATE IN INDIA

-Exemption is being withdrawn on the following service,- (a) Departmentally run public telephone; (b) Guaranteed public telephone operating only local calls; (c) Service by way of making telephone calls from free telephone at airport and hospital where no bill is issued. (S. No. 32 of notification No. 25/12-ST). 6.8 Existing exemption, vide notification No. 42/12-ST dated 29.6.2012, to the service provided by a commission agent located outside India to an exporter located in India is being rescinded with immediate effect. This exemption has become redundant in view of the amendments made in law in the previous budget, in the definition of “intermediary” in the Place of Provision of Services Rules, making the place of provision of a service provided by such agents as outside the taxable territory. The above changes in notification No. 25/12-ST, except the change mentioned in para 6.6, shall come into effect from the 1St day of April 2015. The change mentioned at para 6.6 shall come into effect from a date to be notified after the enactment of the Finance Bill, 2015. The change mentioned at S. No. comes into effect immediately.

SERVICE TAX RATE IN INDIA

New Exemptions:

-Hitherto, any service provided by way of transportation of a patient to and from a clinical establishment by a clinical establishment is exempt from Service Tax. The scope of this exemption is being widened to include all ambulance services. (Amended in the entry at S. No. 2 of notification No. 25/12-ST refers).

-Life insurance service provided by way of Varishtha Pension Bima Yojna is being exempted. (Amendment in entry at S. No. 26A of notification No. 25/12-ST refers)

-Service provided by a Common Effluent Treatment Plant operator for treatment of effluent is being exempted. (New entry at S. No. 43 of notification No. 25/12-ST).

-Services by way of pre-conditioning, pre-cooling, ripening, waxing, retail packing, labeling of fruits and vegetables is being exempted. (New entry at S. No. 44 of notification No. 25/12-ST).

-Service provided by way of admission to a museum, zoo, national park, wild life sanctuary and a tiger reserve is being exempted. These services when provided by the Government or local authority are already covered by the Negative List. (New entry at S. No. 45 of notification No. 25/12-ST).

-Service provided by way of exhibition of movie by the exhibitor (theatre owner) to the distributor or an association of persons consisting of such exhibitor as one of it’s members is being exempted. (New entry at S. No. 46 of notification No. 25/12-ST).

-Goods transport agency service provided for transport of export goods by road from the place of removal to an inland container depot, a container freight station, a port or airport is exempt from Service Tax vide notification No. 31/12-ST dated 20.6.2012. Scope of this exemption is being widened to exempt such services when provided for transport of export goods by road from the place of removal to a land customs station (LCS). (Amendment in notification No. 31/12-ST refers). All the above New Exemptions shall come into effect from the 1st day of April, 2015.

-New entries being incorporated in notification No. 25/12-ST, to continue exemption to certain activities that are presently covered by the Negative List entries which are being omitted:

-Service by way of right to admission to,- i. exhibition of cinematographic film, circus, dance, or theatrical performances including drama or ballet. Page | 11 ii. recognized sporting events. iii. concerts, pageants, award functions, musical performances or sporting events not covered by S. No. ii, where the consideration for such admission is upto Rs. 500 per person. (New entry 46 of notification No. 25/2012-ST and clause (zab) of definitions in the said notification) These changes shall be made effective from the date the amendments being made in the Negative List concerning the service by way of admission to entertainment events come into effect.

SERVICE TAX RATE IN INDIA

Abatements:

– At present, service tax is payable on 30% of the value of rail transport for goods and passengers, 25% of the value of goods transport by road by a goods transport agency and 40% for goods transport by vessels. The conditions prescribed also vary. A uniform abatement is now being prescribed for transport by rail, road and vessel and Service Tax shall be payable on 30% of the value of such service subject to a uniform condition of non-availment of Cenvat Credit on inputs, capital goods and input services.

-At present, Service Tax is payable on 40% of the value of air transport of passenger for economy as well as higher classes, e.g. business class. The abatement for classes other than economy is being reduced and Service Tax would be payable on 60% of the value of such higher classes.

-Abatement is being withdrawn from services provided in relation to chit. Consequently, Service Tax shall be paid by the chit fund foremen on the full consideration received by way of fee, commission or any such amount. They would be entitled to take Cenvat Credit. The proposed rationalization in abatements shall come into effect from the 1st day of April, 2015. 10.

SERVICE TAX RATE IN INDIA

Reverse Charge Mechanism
-Manpower supply and security services when provided by an individual, HUF, or partnership firm to a body corporate are being brought to full reverse charge. Presently, these are taxed under partial reverse charge mechanism.

– Services provided by,- (i) mutual fund agents, mutual fund distributors; and (ii) agents of lottery distributor are being brought under reverse charge consequent to withdrawal of the exemption on such services. Accordingly, Service Tax in respect of mutual fund agent and mutual fund distributor services shall be paid by the assets management company or, as the case may be, by the mutual fund receiving such services. In respect of agents of lottery, Service Tax shall be paid by the distributor of lottery. This above changes in reverse charge mechanism will come into effect from the 1 st day of April, 2015.

SERVICE TAX RATE IN INDIA

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SERVICE TAX RATE IN INDIA

SERVICE TAX RATE IN INDIA

SERVICE TAX RATE IN INDIA

SERVICE TAX RATE IN INDIA

SERVICE TAX RATE IN INDIA

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