India Financial Consultancy

SERVICE TAX AMENDMENTS- BUDGET (NO.2) OF 2014

Amendments relating to service tax proposed in the Finance (No.2) Bill, 2014 as passed by the LokSabha on 25-7-2014, with relevant Notifications issued, are discussed as under. The date on which the amendments are effective are indicated against each clause. The Bill will be enacted when assented to by the President.

[A] RATE OF SERVICE TAX, PAYMENT OF TAX & INTEREST FOR DELAYED PAYMENT:

• The effective rate of service tax of 12.36% remains unchanged.
• The basic exemption of Rs.10 lacs is maintained.
• It is now mandatory for every assessee to pay service tax electronically through internet banking. [effective from 1-10-2014]
• Interest on delayed payment will have to be paid as under [effective from 1-10-2014] –

• For delay upto 6 months – @ 18% p.a.
• For delay of more than 6 months & upto 1 year – @ 18% for first 6 months & @ 24% thereafter
• For delay of more than 1 year – @ 18% for first 6 months; @ 24% for second 6 months and @ 30% for period beyond 1 year

Note: In the case of a service provider, whose value of taxable services provided in a financial year does not exceed sixty lakh rupees, the aforesaid rate of interest shall be reduced by 3% (i.e., 15% or 21% or 27%).

[B] ALTERATION IN TAX BASE:

1) Alteration to Negative List of Services: The service tax base is broadened by removing the following services from the Negative List:

a) Till now, ‘radio taxis’ as well as ‘metered cab’ were covered by the negative list and hence not taxable. Now the definition of ‘metered cab’ is amended to exclude ‘radio taxis’. Thus, service by ‘radio taxi’ will now be taxable. The abatement available to ‘rent-a-cab’ service will be available to ‘radio taxi’ as well. This will bring service by ‘radio taxi’ at par with ‘rent-a-cab’ service. [Effective from date of Notification after enactment]

b) Currently, selling of space or time slots is taxable only for advertisements broadcast by radio & TV. Now the scope of taxability is expanded. After the amendment, only sale of space for advertisement in ‘print media’ will be covered by the negative list. The relief available to ‘Print media’ includes only book’ & ‘newspaper’. Business directories, yellow pages & trade catalogs which are primarily meant for commercial purposes are specifically excluded from the definition of `print media’ and hence sale of space therein will now be taxable. Sale of space or time slots for advertisements on internet websites, cell phones, bill boards & hoardings, conveyances, ATM’s, aerial advertising, theaters, etc. are now taxable. [Effective from date of Notification after enactment]

2) New Exemptions: [effective from 11-7-2014] The following services will now be exempt:

a) Services provided by operators of the common bio-medical waste treatment facility to a clinical establishment by way of treatment or disposal of such waste or processes incidental thereto.

b) Life micro-insurance schemes for the poor, approved by IRDA, where sum assured does not exceed Rs.50,000/-.

c) Specialized financial services received by RBI from outside India in relation to management of Forex reserves.

d) Services provided by a tour operator to a foreign tourist in relation to a tour conducted wholly outside India.

e) Transport within India of organic manure and cotton (ginned or baled) by a vessel, or by rail or by road by a GTA.

f) Services by way of loading, unloading, packing, storage or warehousing of cotton (ginned or baled). Till now, exemption was restricted to such activities in relation to rice only.

3) Withdrawal & Alterations to Existing Exemptions: [effective from 11-7-2014]

a) Exemption to clinical research on human participants is withdrawn.

b) At present, all services provided by educational institutions [providing educational services specified in the negative list] to their students, faculty and staff does not attract service tax; this will continue. However, in respect of services received by such educational institutions, presently, exemption is being operated through the concept of ‘auxiliary educational services’. Several doubts & disputes had arisen in interpreting the scope and meaning of ‘auxiliary educational services’. To bring clarity, the concept of ‘auxiliary educational services’ is omitted. Now only specified services received by an eligible educational institution will be exempt:

• Transportation of students, faculty and staff;
• Catering service including any mid-day meals scheme sponsored by the Government;
• Security or cleaning or house-keeping services in such educational institutions; and
• Services relating to admission to such institution or conduct of examination.

In view of this rationalization, exemption extended so far in respect of renting of immovable property service received by educational institutions, stands withdrawn.

c) Exemption available to accommodation services having declared tariff of less than Rs.1,000/- per day is being redrafted. With this amendment, accommodation services provided by any entity, commercial or otherwise, will be covered by the exemption.

d) Exemption of transportation service to passengers by air-conditioned contract carriages (e.g. buses) stands withdrawn. Here contract carriage does not include a radio taxi.

e) Exemption to services provided to Government, a local authority or a Governmental authority will be limited to specific services by way of water supply, public health, sanitation conservancy, solid waste management and slum improvement/up gradation. Any other activity not directly connected in relation to the aforesaid functions will not be exempt. (more…)