Changes proposed in Service Tax by Union Budget 2016-17
Rate of Service Tax
The effective rate of Service tax has been increased from 14.50% to 15% (14% ST+ 0.5 Swachh Bharat Cess + 0.5% Krishi Kalyan Cess) by way of introducing Krishi Kalyan Cess @ 0.5% (w.e.f. 01-06-2016) on value of taxable services. Input credit of Krishi Kalyan Cess shall be allowed to be used for payment of the Krishi Kalyan Cess only.
CHANGES IN NEGATIVE LIST (Section 66D) (effective from date of enactment of Finance Act 2016)
Educational Services:
- Presently, clause (I) of section 66D of the Act [Negative List] covers specified educational services. These services are proposed to be omitted from the Negative List. However the service tax exemption on them is being continued by incorporating them in the general exemption notification (Notification No. 25/2012-ST as amended by notification No. 09/2016-ST, dated 01.03.2016);
Service of Transportation of Passengers:
- The Negative List entry that covers “service of transportation of passengers, with or without accompanied belongings, by a stage carriage” is proposed to be omitted [section 66D (o) (i)] with effect from 06.2016. The abatement as applicable to the transportation of passengers by a contract carriage that is 60% without credit of inputs, input services and capital goods will be available. However services by a non-air-conditioned contract carriage will continue to be exempted by way of mega exemption notification.
Service of Transportation of Goods by an Aircraft or a Vessel
- The entry in the Negative List that covers services by way of transportation of goods by an aircraft or a vessel from a place outside India up to the customs station of clearance [section 66D (p) (ii)] is proposed to be omitted with effect from 06.2016. Therefore, Service Tax levied on services provided by them by way of transportation of goods by a vessel from outside India up to the customs station in India with effect from 01.06.2016. Cenvat credit of eligible inputs, capital goods and input services is being allowed for providing the service by way of transportation of goods by a vessel from the customs station of clearance in India to a place outside India.
CHANGES IN DECLARED SERVICES (Section 66E) (effective from date of enactment of Finance Act 2016)
New Entry in Declared List
- 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 under section 66E of the Finance Act, 1994.
CHANGES IN MEGA EXEMPTION NOTIFICATION (25/2012-ST)
Withdrawn of Existing Entries
- Exemption on 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,
is being withdrawn with effect from 01.04.2016 and Service Tax is being levied under forward charge.
- Exemption on construction, erection, commissioning or installation of original works pertaining to monorail or metro, in respect of contracts entered into on or after 01.03.2016, is being withdrawn with effect from 01.03.2016. However the services by way of construction, erection, commissioning or installation of original works pertaining to monorail or metro, where contracts were entered into before 1st March, 2016, on which appropriate stamp duty, was paid, shall remain exempt.
- Exemption on the services of transport of passengers, with or without accompanied belongings, by ropeway, cable car or aerial tramway is being withdrawn with effect from 01.04.2016.
New Entries in Exemption Notification (W.e.f. 01-04-2016 except specified mentioned)
| 1 | Services by way of construction etc. in respect of-
(a) housing projects under Housing For All (HFA) (Urban) Mission/Pradhan Mantri Awas Yojana (PMAY); |
| 2 | The service of life insurance business provided by way of annuity under the National Pension System regulated by Pension Fund Regulatory and Development Authority (PFRDA) of India is being exempted from Service Tax. |
| 3 | Services provided by Employees’ Provident Fund Organisation (EPFO) to employees are being exempted from Service Tax. |
| 4 | Services provided by Insurance Regulatory and Development Authority (IRDA) of India are being exempted from Service Tax. |
| 5 | The regulatory services provided by Securities and Exchange Board of India (SEBI) are being exempted from Service Tax. |
| 6 | The 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 are being exempted from Service Tax. |
| 7 | Services provided by National Centre for Cold Chain Development under Department of Agriculture, Cooperation and Farmer’s Welfare, Government of India, by way of knowledge dissemination are being exempted from Service Tax. |
| 8 | Services provided by Biotechnology Industry Research Assistance Council (BIRAC) approved biotechnology incubators to incubates are being exempted from Service Tax. |
| 9 | Services provided by way of skill/vocational training by training partners under Deen Dayal Upadhyay Grameen Kaushalya Yojana are being exempted from Service Tax with effect from 01.04.2016. |
| 10 | Services of assessing bodies empanelled centrally by Directorate General of Training, Ministry of Skill Development & Entrepreneurship are being exempted from Service Tax with effect from 01.04.2016. |
| 11 | The threshold exemption to services provided by a performing artist in folk or classical art forms of music, dance or theatre is being enhanced from Rs 1 lakh to Rs 1.5 lakh charged per event. |
| 12 | Exemptions on services of:(a) Construction provided to the Government, a local authority or a governmental authority, in respect of construction of govt. schools, hospitals etc. (b) construction of ports, airports, are being restored in respect of services provided under contracts which had been entered into prior to 01.03.2015 on payment of applicable stamp duty,with retrospective effect from 01.04.2015. |
| 13 | Services provided by way of construction, maintenance etc. of canal, dam or other irrigation works provided to bodies set up by Government but not necessarily by an Act of Parliament or a State Legislature, during the period from the 1st July, 2012 to 29th January, 2014, are being exempted from Service Tax with consequential refunds, subject to the principle of unjust enrichment. |
| 14 | Services provided by the Indian Institutes of Management (IIM) by way of 2 year full time Post Graduate Programme in Management (PGPM) (other than executive development programme), Integrated Programme in Management and Fellowship Programme in Management (FPM) are being exempted from Service Tax w.e.f. 01.03.2016. |
Amendments in Abatement Notification (26/2012-ST) W.e.f. 01-04-2016
| 1 | The Credit of input services is being allowed on transport of passengers by rail at the existing rate of abatement of 70%. |
| 2 | The Credit of input services is being allowed on transport of goods, other than in containers, by rail at the existing rate of abatement of 70%. |
| 3 | The Credit of input services is being allowed on transport of goods in containers by rail at a reduced abatement rate of 60%. |
| 4 | The Credit of input services is being allowed on transport of goods by vessel at the existing rate of abatement of 70%. |
| 5 | The abatement rate in respect of services by way of construction of residential complex, building, civil structure, or a part thereof, is being rationalized at 70% by merging the two existing rates (70% for high end flats and 75% for low end flats). |
| 6 | The abatement rate in respect of services by a tour operator in relation to packaged tour (defined where tour operator provides to the service recipient transportation, accommodation, food etc) and other than packaged tour is being rationalized at 70%, hence the taxable portion will be 30%. |
| 7 | Abatement on transport of used household goods by a Goods Transport Agency (GTA) is being rationalised at the rate of 60% without availment of cenvat credit on inputs, input services and capital goods by the service provider. |
| 8 | The abatement rate on services of a foreman to a chit fund is being rationalised at the rate of 30%, without CENVAT credit on inputs, input services and capital goods. |
| 9 | At present, there is abatement of 60% on the gross value of renting of motor-cab services, provided no cenvat credit has been taken. It is being made clear by way of inserting an explanation in the notification No. 26/2012-ST that cost of fuel should be included in the consideration charged for providing renting of motor-cab services for availing the abatement. |
Amendments in Reverse Charge Mechanism (w.e.f. 01-04-2016)
Services provided by mutual fund agents/distributor to a mutual fund or asset management company are being put under forward charge, i.e. the service provider is being made liable to pay service tax.
OTHER AMENDMENTS
Period of Issuing Demand Notices u/s 73
The limitation period for recovery of service tax not levied or paid or short- levied or short paid or erroneously refunded, for cases not involving fraud, collusion, suppression etc. is proposed to be enhanced by one year, that is, from 18 months to 30 months. (In Central Excise this time limit has been increased from 12 months to 24 months)
Interest on Delayed Payment of Service Tax u/s 75 (from date of enactment of Fin. Act 2016)
- Interest rates on delayed payment of duty/tax across all indirect taxes are being rationalized and made uniform at 15%,except in case of Service Tax collected but not deposited to the CENTRAL GOVERNMENT, the rate of interest will be 24% from the date on which the Service Tax payment became due.
- In case of assessees, whose value of taxable services in the preceding year/years covered by the notice is less than Rs. 60 Lakh, the rate of interest on delayed payment of Service Tax will be 12%.
One Person Company: (w.e.f. 01-04-2016)
Now they can pay tax quarterly and on receipt basis.