SERVICE TAX - Finance Bill, 2016

SERVICE TAX I Krishi Kalyan Cess Existing Proposed 1. An enabling provision is being made to levy Krishi Kalyan Cess on all taxable services with effect from 1 st June, 2016, to finance and promote initiatives to improve agriculture. - 0.5% II Broadening of Tax base Existing Proposed 1. Exemption on services provided by,- (i) a senior advocate to an advocate or partnership firm of advocates providing legalservice; and (ii) a person represented on an arbitral tribunal to an arbitral tribunal, is being withdrawn with effect from 1 st April, 2016 and Service Tax is being levied under forward charge. Nil 14% 2. Exemption on construction, erection, commissioning or installation of original works pertaining to monorail or metro, in respect of contracts entered into on or after 1 st March 2016, is being withdrawn with effect from 1 st March, 2016. Nil 5.6% 3. 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of transport of passengers, with or without accompanied belongings, by ropeway, cable car or aerial tramway is being withdrawn with effect from 1 st April, 2016. Nil 14% 4. The Negative List entry that covers service of transportation of passengers, with or without accompanied belongings, by a stage carriage is being omitted with effect from 1 st June, 2016. Service Tax is being levied on transportation of passengers by air conditioned stage carriage with effect from 1 st June, 2016, at the same level of abatement as applicable to the transportation of passengers by a contract carriage, that is, 60% without credit of inputs, input services and capital goods. Nil 5.6% III New Exemptions 1. Services by way of construction etc. in respect of- (i) housing projects under Housing For All (HFA) (Urban) Mission/Pradhan Mantri Awas Yojana (PMAY); (ii) low cost houses up to a carpet area of 60 square metres in a housing project under Affordable housing in Partnership component of PMAY (iii) low cost houses up to a carpet area of 60 square metres in a housing project under any housing scheme of the State Government, are being exempted from Service Tax with effect from 1 st March, 2016. 5.6% Nil 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 with effect from 1 st April, 2016. 3.5% Nil Existing Proposed 3. Services provided by Employees Provident Fund Organisation (EPFO) to employees are being exempted from Service Tax with effect from 1 st April, 2016 14% Nil 4. Services provided by Insurance Regulatory and Development Authority (IRDA) of India are being exempted from Service Tax with effect from 1 st April, 2016. 14% Nil 5. The regulatory services provided by Securities and Exchange Board of India (SEBI) are being exempted from Service Tax with effect from 1 st April, 2016. 14% NIL 6. The rate of Service Tax on single premium annuity (insurance) policies is being reduced from 3.5% to 1.4% of the premium, 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, with effect from 1 st April, 2016. 3.5% 1.4% 7. 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 with effect from 1 st April, 2016. 14% Nil 8. 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 with effect from 1 st April, 2016. 14% Nil 9. Services provided by Biotechnology Industry Research Assistance Council (BIRAC) approved biotechnology incubators to incubatees are being exempted from Service Tax with effect from 1 st April, 2016. 14% Nil 10. 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 1 st April, 2016. 14% NIL 11. 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 1 st April, 2016. 14% NIL 12. 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 ₹ 1 lakh to ₹ 1.5 lakh charged per event with effect from 1 st April, 2016. 14% Nil IV Relief Measures 1 To provide level playing field to Indian Shipping lines vis-a-vis foreign shipping lines, it is being proposed to: a) zero rate the services provided by Indian Shipping lines by way of transportation of goods by a vessel to outside India with effect from 1 st March, 2016, and b) impose Service Tax 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 1 st June, 2016 so as to complete the credit chain and enable Indian Shipping Lines to avail and utilize input tax credits. No credit Nil Inputs, input services capital goods credit 14% 2 Notification No. 41/2012- ST, dated the 29th June, 2012 was amended by notification No.1/2016-ST dated 3rd February, 2016 so as to, inter alia , allow refund of Service Tax on services used beyond the factory or any other place or premises of production or manufacture of the said goods for the export of the said goods. This amendment is being made effective from the date of application of the parent notification (i.e. 1 st July 2012). 3 The benefit of quarterly payment of Service Tax is being extended to One Person Company (OPC) and HUF with effect from 1 st April, 2016. 4 The facility of payment of Service Tax on receipt basis is being extended to One Person Company (OPC) with effect from 1 st April, 2016. 5 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, [which were withdrawn with effect from 01.04.2015], 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. 5.6% of total amount Nil 6 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 1 st July, 2012 to 29th January, 2014, are being exempted from Service Tax with consequential refunds, subject to the principle of unjust enrichment. 5.6% of total amount Nil 7 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 with effect from 1 st March, 2016. 14% NIL 8 The services provided by mutual fund agent/distributor to a mutual fund or asset management company, are being made taxable under forward charge with effect from 1 st April, 2016, so as to enable the small sub-agents down the distribution chain to avail small scale exemption having threshold turnover of ₹ 10 lakh per year, subject to fulfillment of other conditions prescribed. 14% 14% V Interest Rate 1. 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 exchequer, in which case 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 ₹ 60 Lakh, the rate of interest on delayed payment of Service Tax will be 12%. [The above changes will come into effect on the day the Finance Bill receives the assent of the President.] Customs 18% Excise 18% Service Tax 18% 24% 30% Customs, Excise Service Tax 15%; 24% in case of Service Tax collected but not deposited to the exchequer VI Rationalization of Abatements Existing Proposed 1 Credit of input services is being allowed on transport of passengers by rail at the existing rate of abatement of 70%. 4.2% Without credit 4.2% With input service credit 2 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%. 4.2% Without credit 4.2% With input service credit 3 Credit of input services is being allowed on transport of goods in containers by rail at a reduced abatement rate of 60%. 4.2% Without credit 5.6% With input service credit 4 Credit of input services is being allowed on transport of goods by vessel at the existing rate of abatement of 70%. 4.2% Without credit 4.2% With input service credit 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). 3.5%/ 4.2% 4.2% 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%. 3.5%/ 5.6% of amount charged 4.2% of amount charged 7 The abatement on shifting of used household goods by a Goods Transport Agency (GTA) is being rationalized at the rate of 60%, without CENVAT credit on inputs, input services and capital goods. (The existing rate of abatement of 70% allowed on transport of other goods by GTA continues unchanged). 4.2% 5.6% 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. 14% 9.8% [The above changes will come into effect from 1 st April, 2016.] VII Reduce litigation and providing certainty in taxation 1 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 cases: a) where prosecution has already been launched b) involving narcotics psychotropic substances c) involving detention under COFEPOSA. 2 Section 67A is being amended to obtain rule making powers in respect of the Point of Taxation Rules, 2011, so as to provide that the point in time when service has been provided or agreed to be provided shall be determined by rules made in this regard. Point of Taxation Rules, 2011 is being amended accordingly. 3 Section 93A of the Finance Act, 1994 is being amended so as to allow rebate by way of notification as well as rules. 4 Explanation 2 in section 65B (44) of the Finance Act, 1994 is being amended so as to clarify that any activity carried out by a lottery distributor or selling agent 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 (17 of 1998), is leviable to Service Tax. 5 Notification No. 27/2012 C.E. (N.T.) dated 18.06.2012 is being amended with effect from 1 st March, 2016 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, is 1 year from the date of : a) receipt of payment in convertible foreign exchange,whereprovision ofservicehas been completed prior to receipt of such payment; or b) issue of invoice, wherepayment, for the service has been received in advance prior to the date of issue of the invoice. 6 Assignment by the Government of the right to use the radio-frequency spectrum and subsequent transfers thereof is being declared as a service under section 66E of the Finance Act, 1994 so as to make it clear that assignment of right to use the spectrum is a service leviable to Service Tax and not sale of intangible goods. 14% 14% 7 A condition mandating inclusion of cost of fuel in the consideration for availing abatement on the services by way of renting of motor-cab is being prescribed with effect from 1 st April, 2016. 8 Service tax on the services of Information Technology Software on media bearing RSP is being exempted from Service Tax with effect from 1 st March, 2016 provided Central Excise duty is paid on RSP in accordance with Section 4A of the Central Excise Act. Nil Nil 9 Mutual exclusiveness of levy of excise duty and Service Tax on Information Technology Software in respect of software recorded on media NOT FOR RETAIL SALE is being ensured by exempting from excise duty only that portion of the transaction value on which Service Tax is paid. 14% 14% VIII Service Tax Rules 1 To reduce compliance cost, the number of returns to be filed by a central excise assessee, above a certain threshold, is being drastically reduced, from 27 to 13, one annual and 12 monthly returns. Monthly returns are already being e-filed. CBEC will provide for e-filing of annual return also. The annual return will also have to be filed by Service Tax assessees, above a certain threshold, taking total number of returns to three in a year for them. This change shall come into effect from 1 st April, 2016. IX CENVAT Credit Rules 1 The rules are being amended so as to allow banks and other financial institutions to reverse credit in respect of exempted services on actual basis in addition to the option of 50% reversal. 2 The rules are being amended to improve credit flow, reduce the compliance burden and associated litigation, particularly those relating to apportionment of credit between exempted and non-exempted final products / services. Changes are also being made in the provisions relating to input service distributor, including extension of this facility to transfer input services credit to outsourced manufacturers, under certain circumstances. The amendments in these rules will also enable manufacturers with multiple manufacturing units to maintain a common warehouse for inputs and distribute inputs with credits to the individual manufacturing units . 3 The rules are being amended to provide for reversal of CENVAT Credit of inputs/input services which have been commonly used in providing taxable output service and an activity which is not a service under the Finance Act, 1994. 4 The CENVAT credit rules are being amended so as to allow CENVAT credit of Service Tax paid on amount charged for assignment by Government or any other person of a natural resource, over such period of time as the period for which the rights have been assigned. [The above amendment shall come into effect from 1 st April, 2016.] X Miscellaneous Period for issuing demand notices 1 Section 73 of the Finance Act, 1994 is being amended so as to increase the limitation period from 18 months to 30 months for short levy/non levy/short payment/non-payment/erroneous refund of Service Tax. Other changes in the Finance Act, 1994 2 The Negative List entry covering educational services by way of (a) pre-school education and education up to higher and secondary school or equivalent, (b) education as a part of a curriculum for obtaining a qualification recognized by any law for the time being in force and (c) education as a part of an approved vocational education course [Section 66D (l)] and the definition of approved vocational education course [section 65B (11)] are being omitted. However, the exemption shall continue by way of exemption notification No. 25/2012 ST. 3 In the last Budget, the Customs, Central Excise and Service Tax laws were amended to provide for closure of proceedings where the assessee pays duty/tax due, interest and specified penalty. Further amendments are being made to Service Tax law so as to provide for closure of proceedings against conoticees, once the proceedings against the main noticee have been closed. 4 The power to arrest in Service Tax is being restricted only to situations where the tax payer has collected the tax but not deposited it to the exchequer, and that too above a threshold of ₹ 2 crore. The monetary limit for launching prosecution is being increased from ₹ 1 crore to ₹ 2 crore of Service Tax evasion.