New Service tax rate of 14% is not effective immediately and shall come into effect only from a date to be notified later

[Bimal jain]

Dear Professional Colleague,

New Service tax rate of 14% is not effective immediately and shall come into effect only from a date to be notified later:

The Union Budget, 2015 has proposed an increase in the rate of Service tax from 12.36% to flat 14% with abolishment of Education cess and Secondary and Higher Secondary Education cess. Further pursuing with Mr. Narendra Modi’s Dream of Swachh Bharat, a new Chapter VI has been inserted in the Finance Bill, 2015 that contains a new levy of cess called the ‘Swachh Bharat Cess’ which may be levied on all or any of the taxable services at the rate of 2% of the value of such services. With Swachh Bharat Cess, Service tax rate may increase from present 12.36% to 16%.

However, it is to be noted that Higher rate of Service tax from 12.36% to 14% will become effective only after the enactment of the Finance Bill, 2015 (From date to be notified) and Not from 01-04-2015.

Changes in Service tax effective from 01-04-2015:

We are summarizing herewith the changes in Service tax that are effective from April 1, 2015 for easy digest:

A: Exemption widened on Service provided by transport of export goods by road from the place of removal to a land customs station (LCS) vide Notification No. 4/2015-ST dated 1-03-2015:

• Goods transport agency service provided for transport of export goods by road from the place of removal to an inland container depot, a container freight station, a port or airport is exempt from Service Tax vide notification No. 31/2012-ST dated 20-6-2012. Scope of this exemption is being widened to exempt such services when provided for transport of export goods by road from the place of removal to a land customs station (LCS).

B: Service Tax Rules, 1994 amended vide Notification No. 5/2015-ST dated 01-03-2015

Under Rule 2: New Entries under Full Reverse Charge

• Mutual Fund/ Asset Management Company needs to pay Service tax under Reverse Charge on services received from mutual fund agent/ distributor - 2(1)(d)(i)(EEA) inserted;
• Lottery Distributor or Selling Agent needs to pay Service tax under Reverse Charge on services received from selling or marketing agents of lottery tickets - Rule 2(1)(d)(i)(EEB) inserted

C: Changes in Mega Exemption Notification No. 25/2012-ST dated 20-06-2012 vide Notification No. 6/2015-ST dated 01-03-2015

Exemptions Withdrawn:

Entry 12: Services provided to the Government, a Local authority or a Governmental authority by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration 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.

Entry 14: Services by way of construction, erection, commissioning, or installation of original works pertaining to an airport or port.

Entry 29: Services by following persons in respective capacities:

• Mutual fund agent to a mutual fund or asset management company;
• Distributor to a mutual fund or asset management company;
• Selling or marketing agent of lottery tickets to a distributer or a selling agent.

Service tax on the above stated services shall be levied under Reverse Charge Mechanism on Mutual fund or Asset Management Company/ Lottery Distributor or Selling Agent w.e.f 01-04-2015

Entry 32: Services by way of making telephone calls from:

• Departmentally run public telephone;
• Guaranteed public telephone operating only local calls;
• Free telephone at airport and hospital where no bill is issued

Exemptions Amended:

Entry 16: Exemption to services provided by a performing artist in folk or classical art form of (i) music, or (ii) dance, or (iii) theatre, has been restricted only to such cases where amount charged is not exceeding ₹ 1,00,000/- for a performance (except brand ambassador)

Entry 20: Exemption under Entry 20(i) substituted, transportation of food stuffs by rail or vessels from one place in India to another will be limited to milk, salt and food grains including flours, pulses and rice. [Earlier Entry 20(i): foodstuff including flours, tea, coffee, jaggery, sugar, milk products, salt and edible oil, excluding alcoholic beverages].

Entry 21: Exemption under Entry 21(d) substituted, for Services provided by a goods transport agency, by way of transport in a goods carriage of, milk, salt and food grain including flours, pulses and rice. [Earlier Entry 21(d): foodstuff including flours, tea, coffee, jaggery, sugar, milk products, salt and edible oil, excluding alcoholic beverages]

New Exemptions:

Entry 2: All ambulance services provided to patients are exempted. Hitherto, any service provided by way of transportation of a patient to and from a clinical establishment by a clinical establishment was exempt from Service tax.

Entry 26A: Life insurance service provided by way of Varishtha Pension BimaYojna.

Entry 43: Services by operator of Common Effluent Treatment Plant by way of treatment of effluent.

Entry 44: Services by way of pre-conditioning, pre-cooling, ripening, waxing, retail packing, labelling of fruits and vegetables which do not change or alter the essential characteristics of the said fruits or vegetables.

Entry 45: Services by way of admission to a museum, national park, wildlife sanctuary, tiger reserve or zoo.

Entry 46: Services provided by way of exhibition of movie by an exhibitor to the distributor or an association of persons consisting of the exhibitor as one of its members.

Certain new definitions also provided for following terms- ‘National park’, ‘Tiger reserve’, ‘Trade union’, Wildlife sanctuary’, ‘Zoo’.

D: Changes in Reverse Charge Mechanism vide Notification No. 7/2015-ST dated 01-03-2015 amending Notification No. 30/2012-ST dated 20-06-2012

New Entries under Full Reverse Charge

1. Mutual Fund/ Asset Management Company needs to pay Service tax under Reverse Charge on services received from mutual fund agent/ distributor;
2. Lottery Distributor or Selling Agent needs to pay Service tax under Reverse Charge on services received from selling or marketing agents of lottery tickets;

From Partial Reverse Charge to Full Reverse Charge

Manpower Supply and Security services provided by an individual, HUF, partnership firm or association of persons to a business entity registered as body corporate have been brought under Full Reverse Charge as against Partial Reverse Charge mechanism applicable at present.

E: Changes In Abatement Notification No. 26/2012-ST dated 20-06-2012 vide Notification No. 8/2015-ST dated 01-03-2015

• Uniform Abatement for transport by rail, road and vessel:A uniform abatement of 70% has been prescribed for transport by rail, road and vessel to bring parity in these sectors. Service tax shall be payable on 30% of the value of such service subject to a uniform condition of non-availment of Cenvat credit on Inputs, Capital goods and Input services.

Presently, Service tax is payable on 30% (in case of rail transport)/ 25% (in case of road transport)/ 40% (in case of transport by vessels). Further, there is no condition for availment of Cenvat credit on Inputs, Capital goods and Input services in case of transport by rail, which is now withdrawn.

• Reduction in abatement for classes other than economy class: The abatement for classes other than economy class (i.e. business/ first class) has been reduced from 60% to 40%. Accordingly, Service tax would be payable on 60% of the value of such higher classes.

At present, Service tax is payable on 40% of the value of transport of passenger by air for economy as well as higher classes (i.e. business/ first class).

Abatement in relation to Chit fund withdrawn: Abatement for the services provided in relation to Chit fund stands withdrawn. Consequently, Service tax shall be paid on full consideration received by the foremen of Chit fund effective from the date to be notified after the enactment of the Finance Bill, 2015 in view of corresponding amendment proposed in the definition of ‘Service’ provided under Section 65B(44) of the Finance Act, 1994.

Hope the information will assist you in your Professional endeavors. In case of any query/ information, please do not hesitate to write back to us.

Thanks and Best Regards,

Bimal Jain

FCA, FCS, LLB, B.Com (Hons)

Delhi:

Flat No. 34B, Ground Floor, Pocket - 1,

Mayur Vihar, Phase - I,

Delhi - 110091, India

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Discussions to this article

[amol dhuri]

Dear Sir, please get updated the actual date and actual rate of service tax to be charge in f.y. 2015-16

[Bimal jain]

New service tax rate will be applicable from date to be notified after enactment of FB, 2015

[himanshu goel]

Dear Sir,

The above article was very useful. Thanks for sharing your views.

It would be a really helpful if you could provide your inputs on the following query:-

The insertion of new entry under the ambit of Reverse Charge (quoted below) draws ambiguity as the legislation covers only word “distributor” & not “Mutual Fund distributor”.

“Under Rule 2: New Entries under Full Reverse Charge

• Mutual Fund/Asset Management Company needs to pay Service tax under Reverse Charge on services received from mutual fund agent/ distributor - 2(1)(d)(i)(EEA) inserted

Hence, whether the same shall be read as only “Distributor” or “Mutual Fund Distributor”. That is to say, whether service of ANY distributor would come under the purview of RCM or only “Mutual Fund Distributor”.

Also, please make note that Notification No. 7/2015 dt. 1^st March, 2015 states the word only “Distributor” & not “Mutual Fund Distributor”.

Awaiting your valuable inputs.