Service tax amendments in budget 2016 and applicability

Budget 2016 has been presented on 29th February 2016 by our honorable finance minister Mr. Arun Jaitley. Below is a list of amendments that are related to service tax.

Service tax

 

Exemption withdrawn

Following exemptions are to be withdrawn

  • Exemption with respect to construction, erection, commissioning or installation of original works pertaining to monorail or metro in respect of contracts entered into on/after 01.03.2016.
  • services provided by-
    • a senior advocate to an advocate or partnership firm of advocates providing legal service; and
    • a person represented on an arbitral tribunal to an arbitral tribunal.

Service tax would be payable under forward charge on such services.

  • transport of passengers, with or without accompanied belongings, by ropeway, cable car or aerial tramway

List of new services exempted from service tax

  • Services by way of construction, erection, commissioning, etc. in respect of
    • housing projects under Housing For All (HFA) (Urban) Mission/Pradhan Mantri Awas Yojana (PMAY)
    • low cost houses up to a carpet area of 60 m2 in a housing project under “Affordable housing in Partnership” component of PMAY
    • low cost houses up to a carpet area of 60 m2 in a housing project under any housing scheme of the State Government.
  • Services provided by the Indian Institutes of Management (IIM) to their students, by way of the specified educational programmes.
  • Services of life insurance business provided by way of annuity under the National Pension System.
  • Services provided by SEBI by way of protecting the interests of investors in securities and to promote the development of, and to regulate, the securities market.
  • Services provided by Employee Provident Fund Organisation (EPFO) to employees.
  • Services provided by Biotechnology incubators approved by Biotechnology Industry Research Assistance Council (BIRAC) approved biotechnology incubators to the incubatees.
  • Services provided by National Centre for Cold Chain Development by way of knowledge dissemination.
  • Services provided by Insurance Regulatory and Development Authority (IRDA) of India.
  • Services of general insurance business provided under Niramaya Health Insurance scheme launched by National Trust for the Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation and Multiple Disability in collaboration with private/public insurance companies.
  • Services provided by way of skill/vocational training by Deen Dayal Upadhyay Grameen Kaushalya Yojana training partners.
  • Services of assessing bodies empanelled centrally by Directorate General of Training, Ministry of Skill Development & Entrepreneurship.

Rationalisation of abatement

  • Abatement at the existing rate of 70% will continue to be available on transport of passengers and goods by rail and on transport of goods by vessel, with the CENVAT credit of input services now to be allowed [presently, the credit of input services is not allowed with the abatement being claimed].
  • A lower rate of abatement of 60% for transport of goods in containers by rail by any person other than Indian railway, with the CENVAT credit of input services being allowed.
  • Uniform rate of abatement of 70% on services by way of construction of residential complex, building, civil structure, or a part thereof, irrespective of the carpet area of the units and amount charged for such units.
  • Abatement on services by a tour operator in respect of a tour only for the purpose of arranging or booking accommodation for any person, retained at the existing rate of 90%. However, abatement in respect of any other tour is rationalised from 75% and 60% to 70%.
  • A lower rate of abatement of 60% on shifting of used household goods by a Goods Transport Agency (GTA) without CENVAT credit on inputs, input services and capital goods.
  • Abatement of 70% on services of a foreman to a chit fund restored, without CENVAT credit on inputs, input services and capital goods.

Amendment to service tax rules

  • Rule 6 of the Service Tax Rules, 1994 to be amended to extend the benefit of quarterly payment of service tax to One Person Company (OPC) whose aggregate value of services provided is up to 50 lakh in the previous financial year and an HUF. Further, payment of service tax on receipt basis is also extended to such OPC.
  • With respect to services provided by mutual fund agents/distributor to a mutual fund or asset management company, service tax to be payable under forward charge provisions, i.e. service provider to be liable to pay service tax.
  • Rule 6(7A) of the Service Tax Rules, 1994 to be amended to provide that an insurer carrying on life insurance business to have an option to pay tax at 1.4% of the total premium charged on single premium annuity (insurance) policies, in cases where the amount allocated for investment/savings on behalf of policy holder is not intimated to such policy holder at the time of providing of service.
  • With effect from 01.04.2016, any service (and not only support services) provided by Government or local authorities to business entities are leviable to service tax. Consequently, service tax would be payable on any (and not only support services) service by the service recipient on reverse charge basis from said date.

Amendments to be effective from the date on which Finance Bill, 2015 receives the assent of the President

  • Finance Act, 2015 had inserted Explanation 2 to the definition of “service” under section 65B(44) of the Finance Act, 1994 to specifically state that service tax is leviable on activities undertaken by lottery distributors and selling agents, in relation to lotteries.

The said explanation is proposed to be amended to clarify that it is the activity in relation to promotion, marketing, organizing, selling of lottery or facilitating in organizing lottery of any kind, in any other manner, of the State Government as per the provisions of the Lotteries (Regulation) Act, 1998, carried out by a lottery distributor/selling agent, which is leviable to service tax.

  • The Negative List entry under section 66D(l) covering ‘educational services is proposed to be omitted. The said benefit would continue by way of exemption under mega exemption Notification No. 25/2012 ST dated 20.06.2012.
  • Assignment by the Government of the right to use the radio-frequency spectrum and subsequent transfers thereof is proposed to be declared as a service.
  • Section 67A is proposed to be amended to obtain specific rule making powers in respect of Point of Taxation Rules, 2011.
  • The time-limit for issuance of show cause notice under section 73, for recovery of service tax not levied/paid/short- levied/short paid/erroneously refunded, for nonfraud cases is proposed to be enhanced by 1 year, i.e. from 18 months to 30 months.
  • Interest rates on delayed payment of duty/tax across all indirect taxes are proposed to be made uniform at 15% p.a. However, under service tax, in case where any amount is collected as service tax but amount so collected is not paid to the credit of the Central Government on/before the date on which such payment becomes due, proposed interest rate is 24% p.a.
  • Power to arrest under section 91 proposed to be restricted only in case where the tax payer has collected the tax of more than Rs 2 crore, but not deposited it to Government. The monetary limit for launching prosecution under section 89 proposed to be increased to Rs. 2 crore of the amount of service tax collected but not deposited to the credit of the Central Government beyond a period of 6 months from the date on which such payment becomes due.
  • Section 93A of the Finance Act, 1994 proposed to be amended so as to allow rebate by way of notification as well as rules.

Amendments to be effective from 01.06.2016

  • It is proposed to levy a Krishi Kalyan Cess on ANY OR ALL the taxable services at the rate of 0.5% of the value of taxable services. It is important to note here that unlike Swachh Bharat Cess, service provider shall be allowed to utilize the CENVAT credit of Krishi Kalyan Cess paid on input services for payment of such cess on the output service provided by it.
  • Service tax proposed to be levied on transportation of passengers, with or without accompanied belongings, by a stage carriage by amending Negative List of services. However, transportation of passengers by non-air conditioned stage carriage are being exempted vide mega exemption notification.
  • Service tax proposed to be levied on transportation of goods by an aircraft or a vessel from a place outside India up to the customs station of clearance by omitting the negative list entry to said effect. However, said services are being exempted vide mega exemption notification.

Other amendments to service tax

  • CENVAT credit is being allowed to service providers providing services by way of transportation of goods by a vessel from India to abroad
  • Rule 5 of the Point of Taxation Rules, 2011 has been amended so as to clarify that this rule shall apply mutatis mutandis in case of new levy on services and new levy or tax shall be payable on all the cases other than specified in said rule.
  • Information Technology Software (IT Software) on media bearing RSP is exempted from service tax provided central excise duty is paid on RSP in accordance with section 4A of the Central Excise Act.

Hitherto, service tax payable on a performance in folk or classical art forms of music/ dance/ theater is exempt provided the consideration there for exceeds Rs. 1, 00,000. This limit has been increased to Rs. 1, 50,000.

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