A. Rate changes:
1. The rate of service tax is being restored to the statutory rate of 12% - same as goods-and Notification No. 8/2009-ST dated February 24, 2009 reducing the rate to 10% has been rescinded effective April 1, 2012. 2. Consequent changes have also been made in composition rates as follows:
For life insurance: 3% for the first year premiums while retaining the rate @1.5% for the subsequent years(simultaneously restoring full Cenvat credit); ii Money changing: raising the existing rates proportionately by 20%; iii Distributor or selling agent of lotteries: Raising the specified amounts proportionately and suitably rounded off to Rs 7,000 and 11,000; iv For works contracts from 4% to 4.8%. 3. The rate for Cenvat reversal for exempt services has been revised likewise from 5% to 6% in Rule 6(3) of Cenvat Credit Rules (CCR), 2004. 4. The dual tax structure for air transportation: partly specific, partly ad valorem - is being replaced with a uniform ad-valorem levy at standard rate with an abatement of 60% on all sectors and all classes. 5. All these changes will be effective April 1, 2012.
B. Taxation of services:
B.1. Negative List: 1. There is paradigm shift in the way services are proposed to be taxed in future. Taxation will be based on what is popularly known as “Negative List of Services”. 2. In simple words, it means that if an activity meets the characteristics of a “service” it is taxable unless specified in the Negative list, comprising 17 heads listed in proposed new section 66D, or otherwise exempted by a notification issued under section 93 of the Act. Most of the 88 exemptions at present will be either rescinded, being no more needed, or modified in some manner, or merged in a mega notification, leaving the final tally of exemptions to just 10. 3. The word “service” is defined in clause (44) of the new section 65B. This will also include certain activities that have been specified as declared services in section 66E. Most of these declared services are presently taxed as positive list. 4. The new charging section is contained in section 66B and levies taxes on all services, other than those in the negative list, provided or agreed to be provided in the taxable territory by one person to another. 5. The entire concept, including the key to understanding the various dimensions of the new taxation, together with answers to possible questions, is...