Budget 2019

Budget 2016: Decoding the service tax changes

MS Mani | Updated on January 20, 2018 Published on February 29, 2016

Service tax to go up to 15%; abatements kept at uniform levels

There are several changes in the service tax legislation which are expected to impact trade and industry.

The effective rate of service tax will go up to 15 per cent from June 1, due to the introduction of the Krishi Kalyan Cess (KKC) at 0.5 per cent on the value of taxable service. It is good to note that this cess would be creditable, unlike its earlier peer the Swachh Bharat Cess.

There are several regulators whose services have now been exempted including SEBI, EPFO and IRDA, in addition to the RBI that has been exempt since the inception of the negative list regime.

It is also heartening to see that some of the exemptions, which were hastily withdrawn during the last two years , have been reinstated with complete clarity that such services have been exempt since the advent of the negative list regime, that is, July 1, 2012. These are retrospective amendments which would be welcomed by industry.

There has been a conscious effort to rationalise the abatements in service tax to uniform levels, which is expected to bring simplicity in service tax computation.

An abatement enables the service provider to apply service tax on the service portion of transaction comprising supply and service. The abatement for tour operators providing packaged tours has now been kept at a uniform level of 70 per cent, similarly the abatement for builders selling under-construction apartments has been kept at a uniform level of 70 per cent. The right to use radio frequency spectrum and subsequent transfers is now covered as a declared service and service tax is payable on the same. It has been clarified that the same would not amount to sale of intangible goods, which would potentially attract VAT. Overall, the changes in service tax seem to be intended to rationalise, expand and rectify some anomalies.

The author is Senior Director, Deloitte Haskins & Sells LLP

Published on February 29, 2016
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