Government of India Ministry of Finance Department of Revenue (Tax Research Unit) *** V. K. Garg Joint Secretary (Tax Research Unit) Telephone No. 011-23093027 Fax No. 011-23093037 E-mail: firstname.lastname@example.org D. O. F. No 334/1/2012-TRU New Delhi, dated 16th March, 2012. Dear Sir/Madam, Subject: Union Budget 2012: Changes in Service Tax-reg. It is said that in matters relating to taxes, questions rarely change, but the answers do. Budget 2012 has, however, changed a number of questions relating to service tax. 2. No more will the most often-asked question “which taxable service is being provided?” be relevant; no more will an exporter be asked whether an input service has been used in export to claim a Cenvat refund; and no more will a host of questions confront a tax-payer filing his new one page return. 3. Budgetary changes relating to service tax this year are aimed at addressing a number of basic issues: simplicity and certainty in tax processes, neutrality of business to tax by mitigating cascading, encouraging exports, optimizing compliance. And these are largely driven by the desire to create the required setting for the eventual launch of GST in a far more familiar environment. 4. Clauses 143 to 145 of the Finance Bill, 2012 cover the legislative changes relating to Service Tax. Changes have also been made in the rules as well as exemptions. A number of other changes are slated to be introduced in subordinate legislation at the time the legislative provisions are operationalized. 5. These changes can be broadly captured as follows:
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rate of 12% - same as goods-and Notification No. 8/2009-ST dated February 24, 2009 reducing the rate to 10% has been rescinded effective April 1, 2012. 2.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...
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