Finance Bill is now an Act, date for levy of 14% service tax to be notified

Shishir Sinha New Delhi | Updated on January 23, 2018 Published on May 16, 2015


President Pranab Mukherjee has given his assent to the Finance Bill, 2015. It means various provisions such as the new taxation norms and merger of the Forward Market Commission with the Securities and Exchange Board of India, besides others, will now be part of an Act and will be implemented accordingly.

Service Tax

However, assent by the President with effect from May 14 does not mean that one can start levying service tax at the rate of 14 per cent immediately. The Finance Ministry will notify the date for implementation of the new rate. New date could be July 1 and till the new date is notified, service tax will continue to be levied at the rate of 12.36 per cent (inclusive of education cess).

Service tax is levied on all services, except those on the negative list. Over half of the services that attract service tax also have abatement which means tax will be levied only on a portion of the total value. For example, air-conditioned restaurants charge service tax on 40 per cent of the bill amount, which is 4.944 per cent. This will change to 5.6 per cent from the date notified for higher service tax rate.

Finance Minister Arun Jaitley in his Budget speech announced hiking of the rate of service tax to 14 per cent from 12 per cent plus education cesses. It was also said the ‘Education Cess’ and ‘Secondary and Higher Education Cess,’ will be subsumed in the revised rate of service tax. It means there will not be any cess over and above 14 per cent. But there is no change in the abatement rules. This means the percentage of value to be taxed will remain the same, but the effective rate of tax will go up.

Income Tax Benefit

With the enactment of the Finance Bill, various tax benefit provisions such as a) increase in the limit of deduction in respect of health insurance premium to Rs 25,000 from Rs 15,000 (for senior citizens the limit will stand increased to Rs 30,000 from the existing Rs 20,000); b) additional deduction of Rs 25,000 for the differently-abled; and c) Rs 50,000 investment in the New Pension Scheme (over and above the Rs 1.50-lakh deduction available under Section 80C of the Income Tax Act), beside others, will have legal backing. All these will be deemed to have come into force on the 1st day of April, 2015.

Merger of FMC with SEBI

The enactment also formalises the way forward for the merger of the commodity market regulator, FMC, with the capital market regulator, SEBI. Now, the Government will notify various dates for implementation of various processes of the merger. It is expected that the entire merger process will be completed in 6-12 months

Under the new mechanism, a commodity derivative broker will get three months’ time to get a registration from the SEBI. Currently, they are not required to register with FMC. SEBI also intends to put in place a stricter regulatory regime for commodity derivative participants. The current system of separate registration by a financial intermediary for commodity trading will continue for at least the “next few years.”

Post-merger, all the recognised associations (read commodity exchanges) providing trading facility in derivatives trading will be deemed to be recognised stock exchanges under the Securities Contracts (Regulation) Act, 1956. These exchanges will be given enough time to become eligible to start trading in equity or currency derivatives. However, being eligible does not mean one can lay claim to providing any new trading platform. It will be a discretionary power of SEBI to give approval for starting anything new. However, post-merger, SEBI will not regulate spot trading as well as the warehousing corporation.

Published on May 16, 2015
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