PresentsA Knowledge Master Class

On

“Understanding New Regime of Service Taxation in India”

Conducted byDr. Sanjiv Agarwal

FCA, FCS

Thursday,13th December, 2012Gurgaon © Dr. Sanjiv

Agarwal

1

Corporate Knowledge Foundation

SESSION – I

Overview of Taxation of Services

and Major Changes

2

Corporate Knowledge Foundation

This Presentation Covers

• Economic Overview

• Overview of Taxation of Services – Past and

Present

• Major Changes

3

Corporate Knowledge Foundation

4

Indian Economy – An Overview

India’s economy is the 11th largest economy in the world and the second fastest growing even in today’s recession

World is presently facing recession-II but Indian economy is still better than comparable economies.

Agriculture, services and industry are the major sectors of Indian economy. Contribution of different sectors in March, 2012 was :

Agriculture 19% Services 59% Industry 22%

to be contd…….

5

GDP CO MPO SITIO N IN MARCH, 2012

Agriculture19%

Industry22%

Service Sector59%

Service Tax Share of Services in GDP

6

Growth in Tax GDP Ratio – Slow but Steady

Years Tax GDP ratio 2003-04 9.2% 2007-08 11.9% 2009-10 9.7% 2010-11 10.3% 2011-12 10.1%

7

Taxonomy of Indian Taxation

TAXATION POWERS OF UNION Income Tax – on income, except agricultural income Excise Duty – on goods manufactured Custom Duty – on imports Service Tax – on specified services Central Sales Tax – on inter-state sale of

goods Stamp Duty – on 10 specified

instruments to be

contd…..

8

Service Tax in India (The Past)

Introduced in India in 1994 as a simple, modest tax with just three services.

Service tax – an indirect tax.Approach to Service Tax – Selective as against

comprehensive one.Desirable from revenue, equity and economic

view point.Governed by Finance Act, 1994 and a dozen of

rules. Legislative dependence on other laws.Scattered and heterogeneous large mass of

service providers as well as wide spectrum of services.

Jurisdictional application.

9

Service Tax in India (The Past)

Selective Approach to Service TaxSelective v Comprehensive approach Taxation by choice Service not defined but taxable service defined. > 120 taxable services [section 65(105)]Resulted in distortions / prejudice Untapped tax potential Economically unjustified Issues – Classification, Illogical definitions,

Constitutional challenges, deemed services etc.

10

Service Tax - Today

Shift to Comprehensive ApproachW.e.f. 1st July 2012Finance Act, 2012 – A land mark Act to shift from

positive to negative approach.It took 18 years to shift from selective approach

(positive) to comprehensive approach (negative )to tax services

All services to be taxed other than services specified in the negative list and exempted services – Section 66B.

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All Services(including declared Services

(-)

Specific Exclusions

(-)

Negative List Services

Exemptions

Taxable Services

(-)

Taxation of Services by Finance Act, 2012

(=)

12

Service Tax - Today

New system of taxation of services

Negative list (17 in number) specified through statutory provisions – Section 66D.

‘Service’ defined for the first time.‘Negative List’ and ‘declared services’ also

defined.

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Service Tax provisions no longer applicable (w.e.f. 1.7.2012)

Section 65 Old definitions of Services / Taxable Services

Section 65A Classification of Services Section 66 Charge of Service Tax Section 66A Charge of Service Tax on

Services received from outside India.

Import of Service Rules, 2006Export of Service Rules, 2005

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New Provisions in Service Tax

Section 66 B deals with charge of service tax on or after Finance Act, 2012

Section 66 C provides for determination of place of provision of service.

Section 66 D comprises of negative list of services

Section 66 E comprises of the services which constitute declared services

Section 66 F provide principles of interpretation of specified description of services or bundled services

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Taxable Services w.e.f. 1.7.2012

All services Taxable [section 65B (44)] Declared services Taxable (section 66E) Services covered under Not

Taxable negative list of services (section 66D) Services exempt under Mega Exempted Notification No. 25/2012-ST dated 20.6.2012 Other specified Exemptions Exempted

16

Goods & Service Tax (The Future)

GST: A Common Tax on

Goods Services

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Pre-requisites for migrating to a GST regime – An Update

• Setting up of empowered committee for GST (like VAT) which can steer the road map into action - done

• Broaden the tax base for excise duty (presently 40% comes from petroleum products) – being done

• Finishing area based and product based exemptions – being done• Rationalization of concessions and exemptions including that on

exports – being done• Expanding service tax to almost all services – negative list

introduced• Common/unified tax rate for goods and services which may be

ideally, revenue neutral (a suitable GST rate) – dual tax proposed• Avoiding or minimizing differential tax rates – under discussions• Abolition of other small taxes - under discussions• Abolition of CST in a phased manner - being done• Power to levy service tax on select/agreed services to States - under

discussions• Issue of inter-State services and goods movement vis-à-vis levy of

duty or tax to be sorted out - under discussions• Revenue sharing mechanism to be rationalized - under discussions

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GST – An Update

Budget 2012 No announcement on GST rollout date GST to be implemented in consultation with the States at the earliest GST network (GSTN) likely to be in place from August, 2012 (not yet

done) GSTN to implement common PAN based registration, return filing and

processing of payments for centre and all states on a shared platform. Bringing closer of Service Tax and Central Excise for transition to GST Drafting of model legislation for CGST and SGST under progress. Common forms for Service Tax and Central Excise registration and

return proposed. Place of Supply Rules, 2012 to trigger debate to assess issues that may

arise in taxation of inter state services for eventual launch of GST.

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The GST Journey – beginning of end…….

Past Recent Past Now & Future

National GST Dual GST ???????

…or end of beginning !!

Objective to widen tax baseService Tax law to be shorter by about 40 percent Effective rate of Service Tax shall be 12.36 percent w.e.f.

01.04.2012 including education cess.Definition of ‘service’ finds place in statutory provisions All services to be taxed including a set of services called ‘declared

services’Negative list of services containing 17 broad service categories to

be out of Service Tax ambit.Withdrawing of many existing exemptions / abetments or their

rationalization

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MAJOR CHANGES IN SERVICE TAX LAW BY FINANCE ACT, 2012 - AT A

GLANCE

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Place of provision of service rules will determine the location of service and become be basis of taxation.

Withdrawal of export of service rules and import of service rules in view of place of provision of service rules coming into operation.

Concept of taxable territory and non- taxable territory brought in Basis of charge of Service Tax shifted under new section 66B. Taxation of Service to be determined by provision of service in

taxable territory and non taxable territory.Classification of service criteria replaced by new section 66F on

interpretation principles of specified description of service or bundled services.

MAJOR CHANGES IN SERVICE TAX LAW BY The FINANCE ACT, 2012 - AT

A GLANCE

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Consequent upon change in service tax rates, there is change of service tax rate in composition scheme and specified rates w.e.f. 1.4.2012 (Composition scheme for works contract withdrawn w.e.f 1.7.2012)

Penalty wavier for arrears paid within specified time in respect of renting of immovable property service.

Retrospective exemption to road repairs and repairs etc of non commercial government buildings.

Under new reverse charge mechanism, onus of paying Service Tax will be shared by service provider and service receiver in case of specified services.

Service Tax on taxable services provided by service provider located in Jammu & Kashmir state liable under reverse charge.

New Accounting Codes for payment of tax under new regime ( for July – November 2012) Tax Collection 00441089 Other Receipts 00441090 Penalties 00441093 Deduct Refunds 00441094

MAJOR CHANGES IN SERVICE TAX LAW BY The FINANCE ACT, 2012 - AT A

GLANCE

Circular No. 165 dated 20.11.2012Notification No. 48/2012-ST dated 3.2.2012No change in lawOnly for statistical analysisNew code created for penaltyRegistration obtained under the positive list

approach continue to be validRegistration under all taxable services to be

amended online under specific head of services

Restoration of Service Specific Accounting Codes

No specific time limit to amend the registration specified

To be done with in 30 days For reverse charge, registration should be

obtained as service receiver under respective category.

Accounting codes for residual entryService Tax 00441480Interest 00441481Penalty 00441485

Restoration of Service Specific Accounting Codes

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Change in valuation rules in relation to works contracts and outdoor catering / supply of food.

Provision introduced for date of determination of value of service, tax rate and rate of exchange.

Payment of Service Tax on receipt basis for all service providers being individuals / firms / LLPs, if aggregate value of taxable services in previous year does not exceed Rs. 50 lakh.

Criteria for Rs 10 lakh threshold exemption changed. Time limit for appeal by assessees to Commissioner (Appeals)

reduced from 3 months to 2 monthsRevision Application Authority and Settlement Commission

provisions made applicable to service tax.Special Audit of Service tax assesses by CAs /CWAs .

MAJOR CHANGES IN SERVICE TAX LAW BY The FINANCE ACT, 2012 - AT A

GLANCE

Service Tax Return – Modified ST-3

N. No. 47/2012-ST dated 28.09.2012 – for April to June 2012, quarterly return prescribed.

Order No. 3/2012 - last date of return was extended upto 25.11.2012

Modified ST-3 issued and available at -www.aces.gov.in/download.jsp

More or less, it is same as previous ST-3 return. Only the year and return period column is pre-filled and constant

Return format and time for next quarter/ period to be notified

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Exports [Rule 6(A)]

Service provider should be in IndiaService receiver should be outside IndiaBoth should not be mere establishmentsService should not be in Negative listService should be provided outside IndiaPayment should be in convertible currencyTaxability as per POP Rules

Exports – W.e.f. 1.07.2012

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‘Service' has been defined in clause (44) of the new section 65B and means –

any activity

for consideration

carried out by a person for another

and includes a declared service (66E)

What is Service