Budget 2016 highlight- Service Tax

April 2016

Hope filled year

With a hope of increasing the profits in 2016-17, develop and expand the business, the professionals have additional hope to rectify the Non Functioning of MCA portal. We hope a quick recovery of proper system in downloading, filing and uploading the e-forms by forcing the Ministry with volume of combined and individual complaints. The other burden a professional or any other service sector companies should face are the increase in Service Tax Rates. Yes, in this edition, we will be seeing the Budget 2016 Highlighting the factors affecting the Service Tax, along with our usual Legal Terms and News Bites that contains notification and updates of MCA, SEBI, RBI and IT Department in the previous month.


CEO Saranya Deivasigamani,

CEO

Budget 2016 Highlights – Service Tax

Following are the major changes proposed in Service Tax by Union Budget 2016-17. Most of the notifications will be effective from date of enactment of Finance Act 2016 while the others are on mentioned date.

Rate of Service Tax

The effective rate of Service tax has been increased from 14.50% to 15% (14% ST+ 0.5 Swachh Bharat Cess + 0.5% Krishi Kalyan Cess) on value of taxable services. Input credit of Krishi Kalyan Cess shall be allowed to be used for payment of the Krishi Kalyan Cess only.

Changes in Negative List (Section 66D) (effective from date of enactment of Finance Act 2016)

Educational Services:

Presently, clause (I) of section 66D of the Act [Negative List] covers specified educational services. These services are proposed to be omitted from the Negative List. However the service tax exemption on them is being continued by incorporating them in the general exemption notification.

Service of Transportation of Passengers:

The Negative List entry that covers “service of transportation of passengers, with or without accompanied belongings, by a stage carriage” is proposed to be omitted [section 66D (o) (i)] with effect from 06.2016. The abatement as applicable to the transportation of passengers by a contract carriage that is 60% without credit of inputs, input services and capital goods will be available. However services by a non-air-conditioned contract carriage will continue to be exempted by way of mega exemption notification.

Service of Transportation of Goods by an Aircraft or a Vessel

The entry in the Negative List that covers services by way of transportation of goods by an aircraft or a vessel from a place outside India up to the customs station of clearance [section 66D (p) (ii)] is proposed to be omitted with effect from 06.2016. Cenvat credit of eligible inputs, capital goods and input services is being allowed for providing the service by way of transportation of goods by a vessel from the customs station of clearance in India to a place outside India.

Changes in Declared Services (Section 66E) (effective from date of enactment of Finance Act 2016)

New Entry in Declared List

Assignment by the Government of the right to use the radio-frequency spectrum and subsequent transfers thereof is proposed to be declared as a service under section 66E of the Finance Act, 1994.

Changes in Mega Exemption Notification (25/2012-ST)
Withdrawn of Existing Entries
  • Exemption on Services provided by senior advocate and person represented on arbitral tribunal.
  • Exemption on construction, erection, commissioning or installation of original works pertaining to monorail or metro, in respect of contracts entered into on or after 01.03.2016, is being withdrawn with effect from 01.03.2016. However the services by way of construction, erection, commissioning or installation of original works pertaining to monorail or metro, where contracts were entered into before 1st March, 2016, on which appropriate stamp duty, was paid, shall remain exempt.
  • Exemption on the services of transport of passengers, with or without accompanied belongings, by ropeway, cable car or aerial tramway is being withdrawn with effect from 01.04.2016.
New Entries in Exemption Notification (W.e.f. 01-04-2016 except specified mentioned)
  • Services by way of construction etc.
  • The service of life insurance business provided by way of annuity under the National Pension System regulated by PFRDA of India.
  • Services provided by EPFO to employees.
  • Services provided by IRDA of India.
  • The regulatory services provided by SEBI.
  • The services of general insurance business provided under ‘Niramaya’ Health Insurance scheme launched by National Trust for the Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation and Multiple Disability in collaboration with private/public insurance companies.
  • Services provided by National Centre for Cold Chain Development under Department of Agriculture, Cooperation and Farmer’s Welfare, Government of India, by way of knowledge dissemination.
  • Services provided by BIRAC approved biotechnology incubators to incubates.
  • Services provided by way of skill/vocational training by training partners under Deen Dayal Upadhyay Grameen Kaushalya Yojana.
  • Services of assessing bodies empanelled centrally by Directorate General of Training, Ministry of Skill Development & Entrepreneurship.
  • The threshold exemption to services provided by a performing artist in folk or classical art forms of music, dance or theatre is being enhanced from Rupee Symbol. 1 lakh to Rupee Symbol. 1.5 lakh charged per event.
  • Exemptions on services of certain construction projects.
  • Services provided by way of construction, maintenance etc. of canal, dam or other irrigation works provided to bodies set up by Government but not necessarily by an Act of Parliament or a State Legislature, during the period from the 1st July, 2012 to 29th January, 2014, are being exempted from Service Tax with consequential refunds, subject to the principle of unjust enrichment.
  • Services provided by the IIM by way of 2 year full time PGPM (other than EDP), IPM and FPM.
Amendments in Abatement Notification (26/2012-ST) W.e.f. 01-04-2016
  • The Credit of input services is being allowed on transport of passengers, goods, etc at the existing rate of abatement of 70%.
  • The abatement rate in respect of services by way of construction of residential complex, building, civil structure, or a part thereof, is being rationalized at 70% by merging the two existing rates.
  • The abatement rate in respect of services by a tour operator in relation to packaged tour and other than packaged tour is being rationalized at 70%.
  • Abatement on transport of used household goods by a GTA is being rationalised at the rate of 60% without availment of CENVAT credit.
  • The abatement rate on services of a foreman to a chit fund is being rationalised at the rate of 30%, without CENVAT credit.
  • The cost of fuel should be included in the consideration charged for providing renting of motor-cab services for availing the abatement.
Amendments in Reverse Charge Mechanism (w.e.f. 01-04-2016)
  • Services provided by mutual fund agents/distributor to a mutual fund or AMC are being put under forward charge, i.e. the service provider is being made liable to pay service tax.
Other Amendments
  • The limitation period for recovery of service tax not levied or paid or short- levied or short paid or erroneously refunded, for cases not involving fraud, collusion, suppression etc. is proposed to be enhanced by one year, that is, from 18 months to 30 months. (In Central Excise this time limit has been increased from 12 months to 24 months)
  • Interest rates on delayed payment of duty/tax across all indirect taxes are being rationalized and made uniform at 15%, except in case of Service Tax collected but not deposited to the CENTRAL GOVERNMENT, the rate of interest will be 24% from the date on which the Service Tax payment became due.
  • In case of assessees, whose value of taxable services in the preceding year/years covered by the notice is less than Rupee Symbol. 60 Lakh, the rate of interest on delayed payment of Service Tax will be 12%.
One Person Company: (w.e.f. 01-04-2016)
  • Now they can pay tax quarterly and on receipt basis

Legal Term

Stare decisis

Translated from the Latin as “to stand by a decision,” the doctrine that a trial court is bound by appellate court decisions (precedents) on a legal question which is raised in the lower court. Reliance on such precedents is required of trial courts until such time as an appellate court changes the rule, for the trial court cannot ignore the precedent.


NewsBites

MCA Updates

  • Forms INC-2, INC-7, INC-29, MGT-10, FTE, PAS-3 have been recently updated on MCA21 portal. CRC shall process INC-2, INC-7 and INC- 29 along with linked forms INC-22, DIR-12 and URC-1.
  • Forms not available in portal temporarily – CRA 4, 23 C, 23 D, I-XBRL, A-XBRL, Refund.
  • New e-forms introduced – CHG-8, INC-12, Investor Complaint e-Form, Serious Complaint e-Form. New e-forms to be introduced – IEPF-1(to 6)
  • Attachments to GNL-2 includes –23 AC, ACA (XBRL), 20B, 66, 21A, 23B.
  • E-Forms withdrawn – 1INV, 5INV,

SEBI Updates

  • Limit for FPI has been modified.

RBI Updates

  • The limit of foreign investment in insurance sector from 26 to 49 percent under the automatic route subject to certain terms and conditions which have been notified through Notification No. FEMA. 366/2016-RB dated March 30, 2016.
  • Holding Companies and CICs shall use ECB proceeds only for on-lending to infrastructure SPVs. The individual limit of borrowing under the automatic route for aforesaid companies shall be as applicable to the companies in the infrastructure sector.
  • The limits for investment by FPIs in Central Government Securities for the next half year are proposed to be increased in two tranches, i.e., by INR. 105 billion from April 4, 2016 and by INR.100 billion from July 5, 2016 respectively.

Income Tax Updates

  • Rule 8A, 8AA, 12, 17C and 114E of Income Tax Rules were modified.