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Union Budget 2016-17: Service tax Highlights

Union Budget 2016-17 has been declared and brought changes in service tax regime. Here  is the service tax highlights of union budget 2016 speech. Read and understand major changes in service tax brought by Budget 2016-17.

Union Budget 2016-17 : Service tax highlights

Service tax rate hike from 14.5% to 15%  due to “Krishi Kalyan Cess-0.5%” Levy:

There is no direct change in service tax rate but With effect from 1st June, 2016, Krishi Kalyan Cess will be levied on any or all the taxable services at the rate of 0.5% on the value of such taxable services. Input Credit of Krishi Kalyan Cess paid on input services shall be allowed to be used for payment of the proposed Cess on the service provided by a service provider.

Don’t worry about service tax rate change now. The change will be effective from 1st June, 2016. Till that, You can use our service tax rate chart to decide service tax rate.

 

Changes in Negative List  :


Following are the proposed changes in the Negative List in Section 66 D

  1.  Education services are proposed to be omitted from the Negative List but the service tax exemption on them is being continued by incorporating them in the general exemption notification  Consequently, the definition of approved vocational education course [clause (11) of section 65B] is also proposed to be omitted from the Finance Act and is being incorporated in the general exemption notification (Notification No. 25/2012-ST as amended by notification No 09/2016- ST, dated 1st March, 2016 refers). This amendment in the notification shall come into effect from the date of enactment of Finance Bill, 2016.
  2. 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. the above services become taxable with effect from 1.06.2016. However, such services by a non-air-conditioned contract carriage will continue to be exempted by way of exemption notification The service of transportation of passengers by air-conditioned stage carriage is being taxed at the same level of abatement (60%) as applicable to the transportation of passengers by a contract carriage, with  conditions of non-availment of Cenvat credit.
  3. 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 is proposed to be omitted with effect from 1.06.2016.  However such services by an aircraft will continue to be exempted by way of exemption notification  The domestic shipping lines registered in India will pay service tax under forward charge while the services availed from foreign shipping line by a business entity located in India will get taxed under reverse charge at the hands of the business entity. The service tax so paid will be available as credit with the Indian manufacturer or service provider availing such services (subject to fulfillment of the other existing conditions). It is clarified that service tax levied on such services shall not be part of value for custom duty purposes.
  4. 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. Consequential amendments are being made in Cenvat Credit Rules, 2004

 

4.2 Further amendments in Chapter V of the Finance Act, 1994:

A. Lottery:

Activity carried out by a lottery distributor or selling agents of the State Government under the provisions of the Lotteries (Regulation) Act, 1998 (17 of 1998), is leviable to service tax.

Declared Services (Section 66E):

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 and hence will be taxable.

 

Section 67A of Finance Act, 1994.

Section 67A is proposed to be amended to obtain specific rule making powers in respect of Point of Taxation Rules, 2011. Point of Taxation Rules, 2011 is being amended accordingly.

 

Amendment in section 73 of the Finance Act:

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.

 Amendment to section 75 of Finance Act

Section 75 of the Finance Act is proposed to be amended so that a higher rate of interest would apply to a person who has collected the amount of service tax from the service recipient but not deposited the same with the Central Government.

It means that now person who has not made willful default ( means service tax collected but not paid to service tax department) in payment of service tax is required to pay service tax at 15%. Additional relief of 3%  for person having   turnover less than 60 lakhs is availalbe.

We can understand interest on delay payment of service tax from following table :

Turnover of Previous year / years covered by noticeDefaultProposed rate of interest
Less than Rs.60 LakhsWillful default21%
60 Lakhs or moreWillful default24%
Less than Rs. 60 LakhsOther cases21%
60 Lakhs or moreOther cases24%

Amendment in section 78A of the Finance Act, 1994

It is proposed to provide that penalty proceedings under section 78A against officers of organisation shall be deemed to be closed in cases where the main demand and penalty proceedings against company or firm have been closed under section 76 or section 78, by making suitable changes to section 78A by addition of an explanation.

 

G. Section 89 of the Finance Act, 1994

The monetary limit for launching prosecution is increased to Rs. 2 crore service tax evasion.

 

H. Sections 90 and 91 of the Finance Act, 1994

The power to arrest in service tax law is proposed to be restricted only to situations where the tax payer has collected the tax but not deposited it with the exchequer, and amount of such tax collected but not paid is above the threshold of Rs 2 crore. Big step !

 

I. Section 93A: Power to grant rebate.

Section 93A of the Finance Act, 1994 is being amended so as to enable allowing of rebate by way of notification as well as rules.

J. Retrospective effect to notification No. 01/2016- ST

Time period of one month is proposed to be allowed to the exporters whose claims of refund were earlier rejected in absence of amendment carried out vide notification No.1/2016-ST dated 3rd February, 2016.

 

Service Tax exemption to canal, dam or other irrigation works with retrospective effect:

  •  The benefit of exemption is proposed to be extended to the said services provided during the period from the st July, 2012 to 29.01.2014.
  • Refund of Service Tax paid on the said services during the period from the 1st July, 2012 to 29.01.2014 shall also be allowed in accordance with the law including the law of unjust enrichment. Application for refund may be allowed to be filed within a period of six months from the date on which the Finance Bill, 2016 receives the assent of the President.

 

Restoration of certain exemptions withdrawn last year for projects, contracts in respect of which were entered into before withdrawal of the exemption.

(a) Exemption from Service Tax on services provided to the Government, a local authority or a governmental authority by way of construction, erection, etc. of –

  • a civil structure or any other original works meant predominantly for use other than for commerce, industry, or any other business or profession;
  • a structure meant predominantly for use as (i) an educational,(ii) a clinical, or (iii) an art or cultural establishment;
  • a residential complex predominantly meant for self-use or the use of their employees or other persons specified in the Explanation 1 to clause 44 of section 65B of the said Act;

was withdrawn with effect from 1.4.2015. The same is being restored for the services provided under a contract which had been entered into prior to 01.03.2015 and on which appropriate stamp duty, where applicable, had been paid prior to that date. The exemption is being restored till 31.03.2020.  The services provided during the period from 01.04.2015 to 29.02.20 16 under such contracts are also proposed to be exempted from service tax.

 

(b) Exemption from Service Tax on services by way of construction, erection, etc. of original works pertaining to an airport, port was withdrawn with effect from 1.4.2015. The same is being restored for the services provided under a contract which had been entered into prior to 01.03.2015 and on which appropriate stamp duty, where applicable, had been paid prior to that date subject to production of certificate from the Ministry of Civil Aviation or Ministry of Shipping, as the case may be, that the contract had been entered into prior to 01.03.2015. The exemption is being restored till 31.03.2020.  The services provided during the period from 01.04.2015 to 29.02.2016 under such contracts are also proposed to be exempted from service tax.

The above changes in the Finance Act, 1994 shall come into force on the day the Finance Bill, 2016 is enacted.

Information Technology Software:

media with recorded Information Technology Software which is not required to bear RSP, is being exempted from so much of the Central Excise duty/CVD as is equivalent to the duty payable on the portion of the value of such Information Technology Software recorded on the said media, which is leviable to service tax. In such cases, manufacturer/importer would therefore be required to pay Central Excise duty/CVD only on that portion of value representing the value of the medium on which it is recorded along with freight and insurance. The exemption is subject to the fulfillment of certain conditions. Thus, the levy of Central Excise duty/CVD and service tax will be mutually exclusive.

6.0 Review of Exemptions:

Effective from 1st Arpil, 2016

Exemption in respect of the following services is being withdrawn,-

  • Services provided by a senior advocate to an advocate or partnership firm of advocates, and
  • A person represented on an arbitral tribunal to an arbitral tribunal;

Service tax in the above instances would be levied under forward charge.Senior advocate has to charge service tax in bill and pay to government.  However, the existing Exemption regarding legal services provided by a firm of advocates or an advocate other than senior advocate is being continued.

 

Exemption under Sl. No. 23 (c) of the notification No.25/2012-ST on transport of passengers, with or without accompanied belongings, by ropeway, cable car or aerial tramway is being withdrawn.

Effective from 1st March, 2016 :

Exemption to construction, erection, commissioning or installation of original works pertaining to monorail or metro (under S. No 14 of the notification No. 25/12-ST) is being withdrawn, in respect of contracts entered into on or after 1st March 2016. The other exemptions under S. No. 14 of notification No. 25/12-ST shall continue unchanged.

New Exemptions in service tax in budget 2016-17:

7.1 The services of life insurance business provided by way of annuity under the National Pension System (NPS) regulated by Pension Fund Regulatory and Development Authority (PFRDA) of India is being exempted from service tax.

 

7.2 Services provided by Securities and Exchange Board of India (SEBI) set up under SEBI Act, 1992, by way of protecting the interests of investors in securities and to promote the development of, and to regulate, the securities market are being exempted from service tax.

 

7.3   Services provided by Employees‟ Provident Fund Organisation (EPFO) to employees are being exempted from service tax.

 

7.4 Services provided by Biotechnology Industry Research Assistance Council (BIRAC) approved biotechnology incubators to the incubatees are being exempted from service tax.

 

7.5 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.

 

7.6 Services provided by Insurance Regulatory and Development Authority (IRDA) of India are being exempted from service tax.

7.7 Services of general insurance business provided under Niramaya Health Insurance scheme 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.

7.8 The threshold exemption limit of consideration charged for services provided by a performing artist in folk or classical art forms of music, dance or theatre, is being increased from Rs 1 lakh to Rs 1.5 lakh per performance.

7.9 Services provided by way of skill/vocational training by Deen Dayal Upadhyay Grameen Kaushalya Yojana training partners are being exempted from service tax.

7.10 Services of assessing bodies empanelled centrally by Directorate General of Training, Ministry of Skill Development & Entrepreneurship are being exempted from service tax.

7.11 Services by way of construction, erection etc. of a civil structure or any other original works pertaining to the “In-situ Rehabilitation of existing slum dwellers using land as a resource through private participation” component of Housing for All (HFA) (Urban) Mission / Pradhan Mantri Awas Yojana (PMAY), except in respect of such dwelling units of the projects which are not constructed for existing slum dwellers, is being exempted from service tax.

7.12 Services by way of construction, erection etc., of a civil structure or any other original works pertaining to the “Beneficiary-led individual house construction / enhancement” component of Housing for All (HFA) (Urban) Mission/ Pradhan Mantri Awas Yojana (PMAY) is being exempted from service tax.

7.13 Services by way of construction, erection, etc., of original works pertaining to low cost houses up to a carpet area of 60 sq.m per house in a housing project approved by the competent authority under the “Affordable housing in partnership” component of PMAY or any housing scheme of a State Government are being exempted from service tax.

7.14 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), admissions to which are made through Common Admission Test conducted by IIMs, 5 year Integrated Programme in Management and Fellowship Programme in Management are being exempted from service tax.

7.15  In view of this, the exemption being given to the above Post gratuate and fellowship programmes of IIMs is clarificatory in nature and in view of the same, liability to pay service tax in respect of the said programmes for the past period will also become infructuous.

The above changes in notification No. 25/12-ST, except the change mentioned in para 7.11, 7.12, 7.13 and 7.14 (which will come into effect from 1st March, 2016), shall come into effect from the 1St day of April 2016.

  1. New entries being incorporated in notification No. 25/2012-ST, to continue exemption to certain activities that are presently covered by the Negative List entries which are being omitted:

8.1 Services by way of transportation of goods by an aircraft from a place outside India up to the customs station of clearance in India were in negative list of services are now ommitted from list and declared as exempted service.

8.2 a new entry is being inserted in notification No.25/2012-ST so as to exempt services by a stage carriage other than air conditioned stage carriage.

These changes shall be made effective from 1st of June, 2016.
  Abatements: ( Effective from 1 st April 2016)

Clarification for tour operator service:

  • In cases where the tour operator is providing services solely of arranging or booking accommodation for any person in relation to a tour, abatement of 90% is available with specified conditions. However, this abatement of 90% cannot be claimed in such cases where the invoice, bill or challan issued by the tour operator, in relation to a tour, only includes the service charges for arranging or booking accommodation for any person and does not include the cost of such accommodation. There is no change in the rate of abatement or the conditions required to be fulfilled for claiming the said abatement.

 

  •  Abatement rates in respect of services by a tour operator in relation to a tour other than mentioned above, is being rationalised from 75% and 60% to 70%. Consequently, the definition of “package tour” aprovided in the relevant notification is being omitted.

 

  • Services provided by foreman to a chit fund under the Chit Funds Act, 1982 are proposed to be taxed at an abated value of 70% [i.e., with abatement of 3 0%], subject to the condition that Cenvat credit of inputs, input services and capital goods has not been availed.

 

  • 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.

 

  •  A uniform abatement at the rate of 70%  is now being prescribed for services of construction of complex, building, civil structure, or a part thereof, subject to fulfilment of the existing conditions.

 

  • At present, service tax is leviable on 30% of the amount charged for the service of transport of passengers by rail, without cenvat credit of inputs, input services and capital goods. Thus, abatement of 70% is presently available in respect of the said services. It is proposed to continue with the same level of abatement with cenvat credit of input services for the said service.

 

  • service tax is proposed to payable on 30% of the value of service of transport of goods by rail ( other than transport of goods in containers by rail) without cenvat credit on inputs and capital goods.  A reduced abatement rate of 60% with credit of input services is being prescribed for transport of goods in containers by rail by any person other than Indian Railway.

 

  •   It is now proposed to continue 70% abatement on service of transport of goods by vessel  with the same level of abatement with cenvat credit of input services for the said service. (Amendment in entry at S. No. 10 of notification No. 26/2012-ST refers)

 

  • 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 (as against abatement of 70% allowed on transport of other goods by GTA).

 

  1. Reverse Charge Mechanism

10.1  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. The small sub-agents down the distribution chain will still be eligible for small service provider exemption [threshold turnover of Rs 10 lakh/year] and a very small number will be liable to pay service tax.

10.2 The liability to pay service tax on any service provided by Government or a local authority to business entities shall be on the service recipient.

Consequently, notification No. 30/2012-ST is being amended so as to delete the words by way of support services appearing at Sl No6 of the Table in the said notification with effect from 1st April, 2016. Further, 1st April, 2016 is being notified as the date from which the words by way of support services shall stand deleted from paragraph 1 clause A (iv), item (C) of notification No. 30/2012-ST.

The above changes shall come into effect from the 1St day of April 2016

Service Tax Rules changes in Budget 2016-17 ( Effective from 1st April, 2016)

  •  The benefits of (a) quarterly payment of service tax and (b) payment of service tax on receipt basis, which are available to individual and partnership firms, are being extended to One Person Company (OPC) whose aggregate value of services provided is up to Rs. 50 lakh in the previous financial year. Further, the benefit of quarterly payment of service tax is also being extended to HUF. Rule 6 of the Service tax Rules, 1994, which deals with the payment of service tax and prescribes relaxation for individual or proprietary firm or partnership firm, is being amended accordingly.
  • legal services provided by a senior advocate shall be on forward charge.
  • The service tax liability on single premium annuity (insurance) policies is being rationalised and the effective alternate service tax rate (composition rate) is being prescribed at 1.4% of the total premium charged, in cases where the amount allocated for investment or savings on behalf of policy holder is not intimated to the policy holder at the time of providing of service.
  • the liability to pay service tax on any service  ( not only support service ) provided by Government or local authorities to business entities shall also be on the service recipient on reverse charge basis.
  1. The Pont of Taxation Rules (POTR).

The Point of Taxation Rules, 2011 have been framed under provisions of clause (a) and (hhh) of sub-section (1) of section 94, now specific powers is also being obtained under section 67A to make rules regarding point in time of rate of service tax. Thus, any doubt about the applicability of service tax rate or apparent contradiction between section 67A and POTR would be taken care of. Therefore, consequent modifications have been done in POTR.

  • Rule 5 of POTR applies when a new service comes into the service tax net. Although in the case of new levy, provisions of Chapter V of the Finance Act, 1994, and rules made thereunder, are invariably made applicable in relation to the levy and collection of the new However, doubts have been raised regarding its applicability in case of new levy. Therefore, an Explanation is being inserted in Rule 5 stating that the same is applicable in case of new levy on services.
  • Further, in rule 5 of POTR, it is provided that in two specified situations the new levy would not apply. Another Explanation is being inserted therein stating that in situations other than those specified where new levy or tax is not payable, the new levy or tax shall be payable.

The above changes shall come into effect from 1st March, 2016.

  1. Cenvat Credit Rules, 2004

With a view to simplify and rationalize the Cenvat Credit Rules, 2004, a number of amendments are being carried out in them. The important changes have been discussed in brief in Annexure-II.

  1. Certain issues clarified:

15.1 Incentives received by air travel agents from computer reservation system companies (CCRS)

the service provided by CCRS is to the Airlines and Air Travel Agent is promoting the service provided by CCRS to Airlines. Thus, the service provided by the ATAs to CCRS is neither covered in the negative list (Section 66D of the Finance Act, 1994) nor exempt by a notification. Therefore, service tax is leviable on the same.

15.2 Services provided by government or local authorities to business entities;

From  1st April, 2016,  any service provided by Government or local authorities to business entities shall be taxable.

15.3 Services provided by Container Train Operators (CTOs)

Service provided by the Indian Railways to Container Train Operators (CTOs) of haulage of their container train (rake of wagons with containers) is a service of Transport of Goods by Rail and is, therefore, eligible for abatement and tax treatment accordingly, that is, for abatement at the rate of 70% with credit of input services.

15.4 Refund of CENVAT Credit

Notification No. 27/2012 ± C.E. (N.T.) is being amended so as to provide that time limit for filing application for refund of Cenvat Credit under Rule 5 of the Cenvat Credit Rules, 2004, in case of export of services, shall be 1 year from the date of ±

  • receipt of payment in convertible foreign exchange, where provision of service has been completed prior to receipt of such payment; or
  • the date of issue of invoice, where payment for the service has been received in advance prior to the date of issue of the invoice.

15.5 Indirect tax Dispute Resolution Scheme, 2016

Indirect tax Dispute Resolution Scheme, 2016, wherein a scheme in respect of cases pending before Commissioner (Appeals), the assessee, after paying the duty, interest and penalty equivalent to 25% of duty, can file a declaration, is being introduced. In such cases the proceedings against the assessee will be closed and he will also get immunity from prosecution. However, this scheme will not apply in certain specified type of cases.

15.6 Returns.

Service tax assessees above a certain threshold will also be required to file an annual return. This change shall come into effect from 1st April, 2016.

15.7 Services provided by institutes of language management (ILMs)

it is clarified that services provided by the Institutes of Language Management (ILMs) are not eligible for exemption under Section 66D (l) of the Finance Act, 1994 or under Sl. No. 9 of Notification No. 25/2012-ST. and hence taxable.

So these were the highlights of service tax changes with introduction of union budget 2016-17. It requires time and efforts to write and collect the updates. Share this post on social media to encourage me to write more.

10 Comments

  1. By tlecons

    Saw in CNBC that service tax will now be 15.1% . Is this true and if so how is this arrived at ?

    • By admin

      14% basic rate + 0.5% swachh Bharat Cess + 0.5% Krishi Kalyan Cess

  2. By tlecons

    In fact the headlines say it is hiked from 14% to 15.1% , So including SB cess will it be 15.6% ? Are they wrong as you have clarified in the post that it is 15% only

  3. By Mohan R

    I like to get all articles from your desk top. Is it possible? if so please share. Thanks in advance

    • By admin

      Hi Mohan,

      Thanks for appreciation. We will think about providing our all article together to readers. Till that, We will provide print button so that you can grab pdf copy of individual article.

  4. By raju

    Hi, I read your articles and found to be great source of information. Please can you provide information on any changes in Tax slabs or provisions for salaried employees. Also on any new schemes positives or negatives review that might help a common man on Tax savings / Investing in this year.

  5. By Madhukar Malhotra

    Are social service NGOs chargeable to service tax ? They serve the community and have no chargeable services however they do collect some amount from members to cover meeting and related costs

  6. By CK Mishra

    can we adjusted SB cess liability with cenvat credit?

  7. By srinivas

    Please clarify whether chit fund cos., will come within the purview of Service Tax and what extent to caliculate the tax?

  8. Is there any change in the revenue limit for service tax . Earlier it was 10 Lacs/Annum and once registered ST was mandatory to be paid irrespective of turnover achieved.
    Does the revenue generated on providing service to Foreign Firms who do not have base in India attract ST?
    Thanks in advance for your kind answers.

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