Budget 2016: Service Tax Changes

The Recent Budget has made the many Changes in the Service tax. These are in the light of growing service sector which is immensely contributing to the Government treasury.

1. Increase in the Rate of Service tax: Service Tax rate has been increased from 14.5% to 15% from 1st June 2016 onwards. This is due to levy of 0.5% of Kisan Kalyan Cess. This cess is utilized by Government mainly to improve the condition of farmers. While the Cenvat Credit of Swatch Bharat Cess is not available but the Cenvat Credit of Kisan Kalyan Cess is available. It is applicable from 1st June 2016.

2. Government Department under Service Tax net: Another Important amendment by budget is that it has brought under the service tax net the government departments who are providing any services to businesses. Earlier only support service provided by Government was under the service tax net but now any service provided by Government departments to other business enitity is taxable.

Also the support service provided by Government was under Reverse Charge mechanism. But now the Budget has removed the Reverse Charge Mechanism & from hereon the provider of service i.e Government Departments or local authorities will have to pay Service tax. It is effective from 1st April 2016.

3. Lottery service by State Government Chargeable: Any promotion, marketing, organizing, selling or facilitating in organizing lottery by state government is chargeable to service tax.

4. Any Service provided by selling or marketing agent of lottery tickets to lottery distributor or selling agent will not be taxable under reverse charge mechanism i.e the provided by service will be liable to pay tax. However if these service are provided to State government then it will be chargeable under reverse charge mechanism.

5. Education Services taxable: Earlier Education service was exempt from Service tax net. But the budget has brought it under the tax net. Therefore any education services of preschool, higher secondary, recognized degree courses & certain approved vocational courses will now be taxable services.

6. Transport of Goods by aircraft or a vessel from place outside India upto the customs station of clearance in India will now be taxable. Earlier it was covered under the negative list.

7. Any Transfer of right to use radio-frequency spectrum by Government or any subsequent transfer will be taxable service.

8. No Reverse charge on Senior Advocate: Earlier service tax on advocates was levied as per reverse charge mechanism. Now an exemption is made where in a senior advocate can discharge his service tax liability himself & no reverse charge mechanism will apply. It is effective from 1st April 2016.

9. Any service provided by person represented on an Arbitral tribunal to an arbitral Tribunal has now been brought under service tax net. It is effective from 1st April 2016.

10. Service provided by IIM’s brought under tax net: Any service provided by IIM’s (Indian Institute of Management) to their students by way of the educational programs are taxable to service tax. However the following list of service are exempt.

a. Two year full time residential post Graduate Programmes in Management for the Post Graduate Diploma in Management to which admissions are made on the basis of CAT

b. Fellow programme in Management.

c. 5 year integrated programme in Management

It is applicable from 1st March 2016.

11. Exemption has been provided to services of construction & allied works in low cost housing projects of Government: Exemption has been provided to any services of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation or alteration of

a. Civil structure or any other original works pertaining to the In-situ rehabilitation of existing slum dwellers using pradan Mantri awas yojana

b. civil structure or any other original works pertaining to beneficiary led individual house construction/ enhancement under Pradan Mantri awas yojana

c. Construction of low cost houses upto carpet area of 60 sqmt per house in a housing project approved by the competent authority under Pradhan mantra Awas Yojana or any housing scheme of state government.

It is effective from 1st March 2016.

12. Service tax will be levied on construction, erection, commissioning or installation of original works pertaining to monorail or metro. It is effective from 1st March 2016.

13. Any services by way of construction, erection, commissioning, installation of original works relating to airport or port where contract has been entered prior to 01/03/2015 & on which appropriate stamp duty has been paid will be exempt from service tax. It is effective from 1st March 2016.

14. Exemption to NPS: The Budget has exempted any National Pension Scheme provided by any company under PFRDA Act. There are 8 companies which provide NPS scheme. The scheme provide exemption to individuals under section 80CCC. It is effective from 1st April 2016.

15. Exemption to SEBI: Any service provided by SEBI for protecting the interest of investors & promote the development of & to regulate the securities market will be exempt from service tax. It is effective from 1st April 2016.

16. Exemption from service tax will provided to general insurance business provided for welfare of persons with autism, cerebral palsy, mental retardation, etc. It is effective from 1st April 2016.

17. Services provided by mutual fund agents/distributor to a mutual fund or asset management company was earlier under reverse charge mechanism. Now such service are removed from reverse charge mechanism & provided of service i.e mutual fund agents/ distributor will be liable to pay service tax. Effective from 1st April 2016

18. Exemption to IRDA: Any service provided by IRDA will be exempt from service tax. It is effective from 1st April 2016.

19. Exemption to EPFO: Any service provided by Employees provident Fund organization will be exempt. It is effective from 1st April 2016.

20. Exemption to services by National Centre for cold chain development has been provided. It is effective from 1st April 2016.

21. Exemption to Bio-incubators: Any service provided by Bio-incubators recognized by Government of India has been exempted from Service tax. It is effective from 1st April 2016.

22. Change in Rate of abatement: The Rate of Abatement for the following has been changed from 1st April 2016.

Earlier Now
Transport of goods in containers by other than Indian railways 70% 60%
Goods Transport Agency in relation to household goods 70% 60%
Service provided by foreman of Chit fund in relation to Chit 30%
Transport of Stage Carriage 60%
Service provided by Tour operator in relation to Package Tour 75% 70%
Construction of a complex, building, civil structure or a part thereof, intended for a sale to a buyer, wholly or partly except where entire consideration is received after issuance of completion certificate by the competent authority 75%/70% 70%

23. Exemption for folk artist has been enhanced: Earlier there was a exemption limit of Rs 1 lakh per performance for consideration received for any form of music, dance or theatre. This limit has been enhanced up to Rs 1.5 lakh per performance.

24. One person company at par with Individual & HUF: A Significant Change in this budget is that One person company has been given the same treatment & exemption as Individual & HUF in case of payment of service tax & filing of service tax return.

25. Annual Service Tax Return: An Annual Service Tax Return has been introduced, which needs to be filed by all assesse. This is in addition to 2 half yearly returns which need to be filed. Such return has to be filed within 30th November. Such return can be revised within 1 month of filing the return. A strict penalty of 100 per day will be levied in case of delay in filing of service tax return, subject to maximum of Rs 20,000.

26. Interest on Non payment of service tax changed: Section 75 has been amended for non payment of service tax. Earlier a slab rate of 18%, 24% & 30% was applicable. Now the same has been changed

1 Collection of any amount as service tax but failing to pay the amount so collected to the credit of the Central Government on or before the date on which such payment becomes due. 24%
2 Other Cases 18%

So we can see from the above that an enhanced rate of 24% is applicable in case service tax is collected but not paid. But in case there has been genuine assesse wherein he has not collected nor paid it is flat 18%.

27. Period of limitation increased to 30 Months: 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, i.e from 18 months to 30 months. The period of limitation in case of fraud, collusion, suppression etc remains 5 years

28. Changes in prosecution by Service tax departments: Department can prosecute the assesse only if the following 2 conditions are satisfied, i.e both the condition must be satisfied.

a. Collects any service tax but fails to pay beyond the period of 6 months from the due date of payment

b. The amount of payment is more than Rs 2 crore.

Therefore if any of the two conditions are not satisfied then prosecution proceedings cannot be made against the assesse.

29. Capital Goods now to include any equipment or appliance used in office. Earlier any Capital goods or equipment used in office was excluded earlier.

30. Inputs Definition Amended: Input now includes any equipment for pumping water for captive use. Input shall also include all goods which otherwise fall within ambit of capital goods but have value less than Rs 10,000 per piece

31. Earlier Input Service Distributor (ISD) was prohibited to distribute Cenvat Credit to Outsourced Manufacturing unit. Now Budget has made an amendment where in a ISD can distribute Credit to outsourced manufacturing unit.

32. Indirect Tax Dispute Resolution Scheme 2016: The Budget has proposed the Indirect Tax Dispute Resolution scheme 2016 where in cases pending before commissioner (Appeals), the assesse, after paying the duty + Interest and Penalty upto 25% of the duty. If the such tax is paid the proceedings against the assesse will be closed. The Scheme will start from 01/06/2016 to 31/12/2016. No refund is allowed for any amount paid under the scheme. It is a very good initiative from Government where in the assesse can pay the said taxes & can close the proceedings against him. But instead of the scheme Government would have come out with VCES scheme again which was a lot more beneficial to the assessee.


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