Budget 2015 service tax changes

2015 UNION BUDGET

ANALYSIS ONCHANGES RELATING TO

SERVICE TAX

2015 UNION BUDGET

ANALYSIS ONCHANGES RELATING TO

SERVICE TAX

R. Venkatakrishnan & Associates

Finance Act, 1994Finance Act, 1994

RVK Associates Location – Chennai, Bangalore, Hyderabad, Salem & Devanahalli

Rate of Service TaxStatutory Ref: Section 66B

Existing Provision: ST to be levied at 12%

Proposed Provision: ST to be levied at 14%

Effective from – Date to be notified by Central Government after the bill is approvedby the President of India.

Impact – Inclusive contracts will take a hit & working capital management for corporateservice providers will also suffer.

Note – Advance payment received will be taxable at revised ST rate – Rule 4 of POTRules 2011.

Statutory Ref: Section 66B






Statutory Ref: Section 66B







Education Cess & SHE Cess

Statutory Ref: Finance Act, 2004 & Finance Act, 2007

Existing Provision: Edu Cess to be levied at 2% on ST & SHE Cess to be levied at 1%of ST

Proposed Provision: Deleted (Subsumed in 14% tax rate)

Effective from – Date to be notified by CG after the bill is approved by the Presidentof India.

Note: Cess will continue till the time revised rate comes into effect












Swachh Bharat Cess

Statutory Ref: Chapter VI of Finance Act 2015

Existing Provision: NIL

Proposed Provision: SB Cess @ 2% of the value of such taxable services

Effective from – Date to be notified by CG

Note: Though the name is ‘Cess’ it is chargeable on the value of the service and notlike the present cess which is charged on the service tax. Accordingly, along with this2%, the total service tax will become 16% on taxable services.












Other Amendments to Finance Act, 1994

Statutory Ref: Section. 67 - Reimbursable Expenditure includable in value of taxableservice.

Consideration for value of taxable services shall include:

All reimbursable expenditure or cost incurred and charged by the service provider.

Amount retained by the distributor or selling agent of lottery from gross saleamount of lottery ticket, or, as the case may be, the discount received, that is thedifference in the face value of lottery ticket and the price at which the distributor orselling agent gets such tickets.

Effective from – 01st March, 2015

Note: ‘Pure agent expenses’ will continue to be exempt, if they satisfy the conditions ofRule 5 of Valuation Rules and the illustrations therein. This is only a statutory power totax, if Rule 5 is violated.















Statutory Ref: Section. 73

A new sub-section (1B) will enable to Department to recover Service Tax declaredin the return but not paid, without service of any notice.

Sub-section (4A) that provides for reduced penalty if true and complete details oftransaction were available on specified records, is being omitted.


Note: In lieu of above provision of 73(4A) (reduced penalty), there are alternatesimplified penalty provisions, discussed later.












Other Amendments to Finance Act, 1994Statutory Ref: Replacement of Section 76 & 78 – Penalties – w.e.f. date of

enactment of Finance Bill 2015

Particulars Section 76 Section 78

When Applicable Cases other than fraud,suppression etc.

Fraud, Collusion, wilfulmisrepresentation Suppression

Cases other than fraud,suppression etc.

Fraud, Collusion, wilfulmisrepresentation Suppression

When ST paid before issue of show causenotice u/s 73(1)

No penalty No penalty

When ST+ Interest is paid within 30 daysof issue of SCN but before order is issued

No penalty 15% of the service tax demandedin the SCN

When ST+Interest is paid after 30 days ofissue of SCN but before the order is issued

Penalty as decided in theorder as mentioned below

100% of the service tax demandedin the SCN

Maximum penalty to be levied in theorder

Maximum of 10% of servicetax demanded in the order

Equal to 100% of the service taxdemanded in the order


Maximum penalty to be levied in theorder

Maximum of 10% of servicetax demanded in the order

Equal to 100% of the service taxdemanded in the order

In case ST+ Interest+ Penalty paid within30 days of Order in Original

25% of penalty imposed inthe order

25% of Service tax demanded inthe order

In case ST amount subsequently reducedby any appeal order

Benefit of reduced penalty (25%) available if ST+ Interest+Reduced Penalty paid within 30 days of such appeal order

Finance Act, 1994… Additions

Statutory Ref: Section. 78B – New section - Transitional provisions for penalties

i. New penalties under section 76 and 78 shall apply to all cases where,

i. No SCN is served or

ii. SCN is served but no order has been issued

iii. Before the date of the finance bill, 2015 being enacted

ii. In respect of cases covered u/s 73(4A) penalty shall not exceed 50% of the servicetax amount

Effective from – After the finance bill 2015 is enacted


















Existing Provision: Waiver of Penalty in specified situations.

New Provision: The most beneficial Section 80 of Finance Act, 1994 which provides forwaiver of penalty in certain Bonafide circumstances is being omitted.

Effective from – The date Finance Bill 2015 is enacted

Note: An ineffective section, not acted upon by any Commissioner, hence being omitted.












Service Tax Rules, 1994Service Tax Rules, 1994


Registration

Statutory Ref: Rule 4 of Service Tax Rules r/w Order No. 1/15-ST, dated 28.2.2015.

Subject – Simplification of Registration procedures

To move towards ease of doing business, it has been prescribed to grant registrationfor single premises within 2 days of filing of application. The modalities of the samehave been issued by CBEC vide Order No. 1/2015 which also provides for makingavailable provisional registration for payment of taxes. This will help new assessees.











Invoices & Records

Statutory Ref: Rule 5 of Service Tax Rules, 1994

Proposed Provision: Invoices can now be digitally signed. Also, records can bepresented in electronic form.

Effective from – Conditions & Procedure for such will be specified by CBEC

Statutory Ref: Rule 5 of Service Tax Rules, 1994

Proposed Provision: Invoices can now be digitally signed. Also, records can bepresented in electronic form.

Effective from – Conditions & Procedure for such will be specified by CBEC


Tax Rate for Air Travel Agent

Statutory Ref: Rule 6(7) of Service Tax Rules, 1994

Existing Provision:

a. Air Travel Agent - 10% of ST Rate on Basic Fare in case of Domestic Bookings i.e., 1.20%

b. Air Travel Agent – 5% of ST Rate on Basic Fare in case of International Bookings i.e.,0.60%

Proposed Provision:

a. Air Travel Agent - 10% of ST Rate on Basic Fare in case of Domestic Bookings i.e., 1.40%(14%*10%)

b. Air Travel Agent – 5% of ST Rate on Basic Fare in case of International Bookings i.e.,0.70% (14%*5%)

Effective from – Both are consequential to change of ST rate to 14%; Effective from date tobe notified by CG


Existing Provision:



Proposed Provision:





Existing Provision:



Proposed Provision:





Tax Rate for Life Insurance Service

Statutory Ref: Rule 6(7A) of Service Tax Rules, 1994

Effective from – Both are consequential to change of ST rate to 14%; Effective fromdate to be notified by CG

Existing Provisions Proposed Provisions




First Year- 3% of PremiumCharged

Subsequent Years-1.5% ofPremium Charged

First Year- 3.5% of PremiumCharged

Subsequent Years-1.75% ofPremium Charged




Tax Rate for Money Changer’s service

Statutory Ref: Rule 6(7B) of Service Tax Rules, 1994

Effective from – These are consequential to change of ST rate to 14%; Effective fromdate to be notified by CG





Upto Rs. 1 Lac- 0.12% subjectto min. Of Rs. 30

1 Lac-10 Lac: 0.06% + 120

Above 10 Lac: 0.012% + 660subject to a max of Rs. 6,000


1 Lac-10 Lac: 0.07% + 140

Above 10 Lac: 0.014% + 770subject to a max 7,000





1 Lac-10 Lac: 0.06% + 120

Above 10 Lac: 0.012% + 660subject to a max of Rs. 6,000


1 Lac-10 Lac: 0.07% + 140

Above 10 Lac: 0.014% + 770subject to a max 7,000

Tax Rate for Organizing Lottery

Statutory Ref: Rule 6(7C) of Service Tax Rules, 1994






Guaranteed payout > 80% -Rs. 7,000

Guaranteed Payout < 80% -Rs. 11,000

Guaranteed payout > 80% -Rs. 8,200

Guaranteed Payout < 80% -Rs. 12,800




Negative ListNegative List


Changes in Negative List….. Deletions

Statutory Ref: Section 66D of Finance Act, 1994

The following services are deleted from the negative list and accordingly will becometaxable, subject to other exemptions discussed in subsequent slides:

Access to amusement facilities for fun or recreation by means of rides, gamingdevices or bowling alleys in amusement parks, amusement arcades, water parks,theme parks.

Admission to entertainment event of concerts, non-recognized sporting events,pageants, music concerts, award functions, if the amount charged is more than Rs.500

Service by way of carrying out any processes for production or manufacture ofalcoholic liquor for human consumption

Any services provided by Government or Local Authority to a Business Entity

















Changes in Negative List….. Additions


The following services are Added to the negative list and accordingly will be not betaxable:

Concerts, pageants, award functions, musical or sporting event not covered by theabove exemption, where the consideration for such admission is upto Rs. 500 perperson.

Recognized Sporting Event

Exhibition of cinematographic film, circus, dance, or theatrical performance includingdrama or ballet.















Mega Exemption List of servicesMega Exemption List of services


Changes in Mega Exemption List

Statutory Ref: Notification No. 25/2012 dt. 20.06.2012

Existing Provision: Construction related service provided to the Government, a localauthority or a governmental authority are exempted.

Proposed Provision: Construction services provided to Government or local authority ora government authority will be taxable except for

i. Construction of a historical monuments, archeological site or remains of nationalimportance, archeological excavation or antiquity

ii. Construction of Canal, dam or other irrigation work and

iii. Construction of pipeline, conduit or plant for i) water supply ii) sewerage treatmentor disposal.

Effective from – 1st April, 2015


















Existing Provision: Construction, Erection and related services of original contractpertaining to an airport, port or railways including mono rail or metro.

Proposed Provision: Construction, Erection and related services of original contractpertaining to railways including mono rail or metro are exempted.

Note: Accordingly, Construction of an airport or port is being taxable. Otherexemptions covered in serial no. 14 relating to Construction are continued to beexempted.















Existing Provision: Services provided by a performing artist in folk or classical artform of (i) music, or (ii) dance, or (iii) theatre is exempted

Proposed Provision: The above exemption will be applicable only if amount chargedis upto Rs 1,00,000 for a performance. Further, if such services are provided by anArtist who is a Brand Ambassador continues to be taxable service.












Statutory Ref: Notification No. 25/2012

Existing Provision: Transportation of goods by rail/vessel and Goods transportagency in relation to foodstuff including flours tea, coffee, jaggery, sugar, milkproducts, salt and edible oil, Excluding alcoholic beverages were exempt.

Proposed Provision: Exemption withdrawn on transportation of all food stuff exceptfor transportation of food grains including rice and pulses, flour, milk and salt.Agriculture produce continues to be exempted













Existing Provision: Services provided by the following were exempt

a. Mutual fund agent or distributor to a mutual fund or Asset management company,

b. Selling or marketing agent lottery ticket to a distributor or a selling agent

Proposed Provision: The above Exemption is withdrawn making it a taxable service.Further, service tax on these services will be levied on reverse charge basis.

















Existing Provision: ST exempt on

a. Telecommunication Services Departmentally run public telephone

b. Guaranteed public telephone operating only local calls and

c. Service by way of making telephone calls from free telephone at airport andhospital where no bill is issued.

Proposed Provision: The above exemption is being withdrawn on all of the aboveservices are taxable



















Service by way of pre – conditioning, pre – cooling, ripening, waxing, retailpacking, labeling of fruits and vegetables is being exempted.

Service provided by a common effluent treatment plant operator for treatment ofeffluent is being exempted.

Life insurance services provided by way of Varshitha Pension Bima is beingexempted.

Transportation of a patient in an ambulance for all purposes














The following services are Added to the mega exemption notification and accordinglywill become exempt:

Exhibition of movie by the exhibitor (theatre owner) to the distributor or anassociation of persons consisting of such exhibitor as one of it’s members

Admission to a museum, zoo, national park, wild life sanctuary and a tiger reserve

Transport of export goods by road from the place of removal to a land customsstation (LCS)















Reverse Charge Mechanism (RCM)Reverse Charge Mechanism (RCM)


Supply of Manpower


Existing Provision: Service Provider is liable to Pay 25% of ST Liability & ServiceReceiver is liable to pay 75% of ST Liability

Proposed Provision: Service Receiver will be required to dishcarge100% of the STLiability











Service provided under Aggregator model

Statutory Ref: Rule 2 of Service tax rules 1994 and Notification No. 30/2012 date20-06-2012

New item added to RCM : Service provided or agreed to be provided by an in anaggregator model, the aggregator or any of his agent or representative office locatedin India is liable to pay service tax on all the services rendered under the model


Statutory Ref: Rule 2 of Service tax rules 1994 and Notification No. 30/2012 date20-06-2012

New item added to RCM : Service provided or agreed to be provided by an in anaggregator model, the aggregator or any of his agent or representative office locatedin India is liable to pay service tax on all the services rendered under the model



AbatementsAbatements


Services relating to Chit fund

Statutory Ref: Notification No: 26/2012 – ST dated 20.06.2012

Existing Provision: ST on Service provided in relation to chit was taxable only at 30%wherein 70% abatement was provided.

Proposed Provision: The above abatement is withdrawn wherein service tax will bepaid by the chit fund foremen at full consideration received by way of commissionreceived by way of fee, commission or any such amount.

However, CENVAT Credit will be available.













Transport of goods by Rail, Road &Vessel


Existing Provision: Tax on Transport of goods by

a. Rail - 30% wherein 70% of value is abated (CENVAT Credit was allowed)

b. Road – 25% wherein 75% of value is abated (CENVAT Credit was not allowed)

c. Vessel - 40% wherein 60% of value is abated (CENVAT Credit was not allowed)

Proposed Provision: Abatements are rationalized now wherein ST rate will be chargedat 30% wherein 70% of the value is abated.

Further, CENVAT Credit on Inputs, Capital Goods & Input Services will not be allowedwhen abatement is opted

Effective from – 1st April 2015


















Air Travel other than economy class

Statutory Ref: Notification No. 26/2012 dt 20.06.2012

Existing Provision: Abatement of 60% is available on Air travel. The effective taxrate is only 4.944% (12.36%*40%). CENVAT credit on Input Services is only available

Proposed Provision: In case of Air travel other than Economy class, say business classAbatements is reduced from 60% to 40%. CENVAT credit on Input Services is onlyavailable

Note: There is no change in abatement for economy class, which continues to be 60%













CENVAT Credit Rules, 1994CENVAT Credit Rules, 1994


Eligibility to Avail CENVAT Credit under RCM

Statutory Ref: Rule 4(7) of CENVAT Credit Rules, 2004

Existing Provision: Under partial reverse charge mechanism, CENVAT Credit can beavailed only after making payment to the service provider.

Proposed Provision: CENVAT Credit can be availed without linking the payments toservice provider.











Timeline to Avail CENVAT Credit

Existing Provision: CENVAT Credit needs to be availed within 6 months from the dateof Invoice

Proposed Provision: CENVAT Credit will be allowed within 1 year from the date ofInvoice


Existing Provision: CENVAT Credit needs to be availed within 6 months from the dateof Invoice

Proposed Provision: CENVAT Credit will be allowed within 1 year from the date ofInvoice



Contact UsChennai

+ 91 44 24618778 [email protected]

Bangalore

+9 1 80 23418753 [email protected]

Hyderabad

+91 40 66620039 [email protected]

Salem


Devanahallai


Contact UsChennai

+ 91 44 24618778 [email protected]

Bangalore


Hyderabad


Salem


Devanahallai


http://www.rvkassociates.com

Disclaimer

This information contained herein is of limited analysis of the topics covered. Further, manyof the contents of this document are subject to approval of Finance Bill by the Parliamentand its assent by the President of India.

This document is prepared only as guiding tool reflecting highlights of Union Budget2015. While every care has been taken in the preparation of this document, it maycontain inadvertent errors for which we shall not be held responsible. No one should act onsuch information without appropriate professional advice. We accept no responsibility forloss arising from any action taken or not taken by anyone using this material andinformation.






Economy & Finance

Budget 2015 service tax changes