New Delhi, Feb. 28
SMALL service providers had some good news coming their way from the Union Budget proposals announced by the Finance Minister, Mr P. Chidambaram, on Monday.
The Government has decided to exempt from service tax those service providers whose gross turnover does not exceed Rs 4 lakh per year. The proposed exemption for small service providers would be applicable from April 1, 2005.
While the small service providers had reason to smile, there was unappetising news for mutual funds.
The Government has decided to amend the service tax rules so that the liability of payment of service tax on business auxiliary services provided by the distributors of mutual funds would be on the recipient of the service, i.e., mutual funds.
The proposed change for mutual funds would be applicable for services rendered on or after April 1.
In line with the expectations, Mr Chidambaram has brought nine additional services under the service tax net besides extending the scope of 12 existing services.
These changes will, however, come into effect from a date to be notified after the enactment of Finance Bill 2005. Currently, service tax is levied on 71 services.
The Centre has budgeted the service tax collections for 2005-06 at Rs 17,500 crore against the revised estimate of Rs 14,150 crore for 2004-05.
Services provided from outside India to a recipient in India will also be considered as part of taxable services. Further, taxable services would include "services to be provided". The Government has now given a clarification to this effect.
This proposal will, however, come into effect only from a date to be notified after the enactment of Finance Bill 2005.
The new services to be brought under the service tax net include transport of goods through pipeline or other conduit; site preparation and excavation, earth moving, and demolition services other than those provided to agriculture, irrigation and watershed development; dredging services of rivers, ports, harbours, backwaters and estuaries; survey and map-making other than by Government departments, and membership of clubs or associations.
Further, packaging services, mailing list compilation and mailing, and construction of residential complexes with more than 12 dwelling units or apartments together with common areas and other appurtenances, are also proposed to be brought under the service tax net.
To tackle service tax avoidance, the Finance Bill 2005 seeks to amend the Finance Act 1994 to clarify that payments received, before, during, or after the provision of taxable service would form part of gross amount for charging service tax.
The Government has also decided to amend the service tax rules to specify that the due date for service tax payment by all service tax assesses would be the 5th of the following month or quarter, as the case may be. The Finance Act 1994 is also to be amended to allow an existing joint venture in India to avail itself of the benefit of advance ruling.