Changes in Service Tax by Union Budget 2016-17 (Finance Act 2016)

Finance Act 2016 (No. 28 of 2016).pdf

1.Rate of Service Tax

The effective rate of Service Tax is increased from 14.50% to 15% (14% ST+ 0.50% Swachh Bharat Cess + 0.50% Krishi Kalyan Cess) by way of introducing Krishi Kalyan Cess @ 0.50% (w.e.f. 01-06-2016) 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. However it may be noted that there is no input credit allowed for Swachh Bharat Cess.

Accounting Code for Payment of Krishi Kalyan Cess (Circular No. 194/04/2016-ST)

Tax Collection

Interest Penalties
00441509 00441510

00441512

 

2.Changes in Point of Taxation Rules 2011 with respect to New Levy of Krishi Kalyan Cess (KKC)

  • For Service Provider: KKC not payable if the payment has been received before 1st June, 2016 and invoice has been issued either prior to 1-6-2016 or within fourteen days i.e. upto 14-06-2016.
  • For Service Recipient u/s 68(2):

a) Service Received from Government or Local Authority: Tax is payable on earlier of

– Payment became due

– Payment received

Thus KKC is not payable where either Invoice has been issued or payment received before 01-06-2016.

b) Service Received from other than Government or Local Authority: Where the invoice is issued prior to 1-6-2016 but payment received lateron then then POT will be date of issue of invoice. Thus KKC is not payable if service has been provided and the invoice issued before 01-06-2016 and merely payment received after 1-6-2016.

3.CHANGES IN NEGATIVE LIST (Section 66D) (w.e.f. 14-05-2016 i.e. date of enactment of Finance Act 2016)

Educational Services:

  • Earlier, clause (I) of section 66D of the Act [Negative List] covers specified educational services. These services is omitted from the Negative List. However the service tax exemption on specified educational services is incorporated in the general exemption notification (Notification No. 25/2012-ST as amended);

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 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 is 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 omitted with effect from 06.2016. Therefore, Service Tax levied on services provided by them by way of transportation of goods by a vessel from outside India up to the customs station in India with effect from 01.06.2016. Cenvat credit of eligible inputs, capital goods and input services is 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.

4.CHANGES IN DECLARED SERVICES (Section 66E)

New Entry in Declared List

  • Assignment by the Government of the right to use the radio-frequency spectrum and subsequent transfers thereof is declared as a service under section 66E of the Finance Act, 1994. (w.e.f. 14-05-2016)  

5.Changes in Mega Exemption Notification (25/2012-ST)

Withdrawn of Existing Entries

1. Exemption on Services provided by,-

a) a senior advocate to an advocate or partnership firm of advocates providing legal service; and

b) a person represented on an arbitral tribunal to an arbitral tribunal,

has been withdrawn with effect from 01.04.2016 and Service Tax is levied under forward charge.

  1. 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 has been 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.
  1. Exemption on the services of transport of passengers, with or without accompanied belongings, by ropeway, cable car or aerial tramway has been withdrawn with effect from 01.04.2016.

New Entries in Exemption Notification

1.

Services by way of construction etc. in respect of-

i. housing projects under Housing For All (HFA) (Urban) Mission/Pradhan Mantri Awas Yojana (PMAY);

ii. low cost houses up to a carpet area of 60 square meters in a housing project under “Affordable housing in Partnership” component of PMAY;

iii. low cost houses up to a carpet area of 60 square meters in a housing project under any housing scheme of the State Government;

are exempted from Service Tax with effect from 01.03.2016. [Entry 13 & 14]

2.

The service of life insurance business provided by way of annuity under the National Pension System regulated by Pension Fund Regulatory and Development Authority (PFRDA) of India is exempted from Service Tax with effect from 01.04.2016. [Entry 26C]

3.

Services provided by Employees’ Provident Fund Organisation (EPFO) to employees are exempted from Service Tax with effect from 01.04.2016. [Entry 49]

4.

Services provided by Insurance Regulatory and Development Authority (IRDA) of India are exempted from Service Tax with effect from 01.04.2016. [Entry 50]

5.

The regulatory services provided by Securities and Exchange Board of India (SEBI) are exempted from Service Tax with effect from 01.04.2016. [Entry 51]

6.

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 are exempted from Service Tax with effect from 01.04.2016. [Entry 26]

7.

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 are exempted from Service Tax with effect from 01.04.2016. [Entry 52]

8.

Services provided by way of skill/vocational training by training partners under Deen Dayal Upadhyay Grameen Kaushalya Yojana are exempted from Service Tax with effect from 01.04.2016. [Entry 9D]

9.

Services of assessing bodies empanelled centrally by Directorate General of Training, Ministry of Skill Development & Entrepreneurship are exempted from Service Tax with effect from 01.04.2016. [Entry 9C]

10.

The threshold exemption to services provided by a performing artist in folk or classical art forms of music, dance or theatre is enhanced from Rs 1 lakh to Rs 1.5 lakh charged per event with effect from 01.04.2016. [Entry 16]

11.

Exemptions on services of:

(a) Construction provided to the Government, a local authority or a governmental authority, in respect of construction of govt. schools, hospitals etc.

(b) Construction of ports, airports, are restored in respect of services provided under contracts which had been entered into prior to 01.03.2015 on payment of applicable stamp duty, with retrospective effect from 01.04.2015. [Entry 12A]

12.

Services provided by the Indian Institutes of Management (IIM) by way of 2 year full time Post Graduate Programme in Management (PGPM) (other than executive development programme), Integrated Programme in Management and Fellowship Programme in Management (FPM) are exempted from Service Tax with effect from 01.03.2016. [Entry 9B]

13.

Services provided by Government or a local authority to another Government or local authority:

Provided that nothing contained in this entry shall apply to services specified in sub-clauses (i),(ii) and (iii) of clause (a) of section 66D of the Finance Act, 1994; [Entry 54] w.e.f. 13-04-2016

14.

Services provided by Government or a local authority by way of issuance of passport, visa, driving licence, birth certificate or death certificate; [Entry 55] w.e.f. 13-04-2016

15.

Services provided by Government or a local authority where the gross amount charged for such services does not exceed Rs. 5000/- :

Provided that nothing contained in this entry shall apply to services specified in sub-clauses (i), (ii) and (iii) of clause (a) of section 66D of the Finance Act, 1994:

Provided further that in case where continuous supply of service, as defined in clause (c) of rule 2 of the Point of Taxation Rules, 2011, is provided by the Government or a local authority, the exemption shall apply only where the gross amount charged for such service does not exceed Rs. 5000/- in a financial year; [Entry 56] w.e.f. 13-04-2016

16.

Services provided by Government or a local authority by way of tolerating non-­performance of a contract for which consideration in the form of fines or liquidated damages is payable to the Government or the local authority under such contract; [Entry 57] w.e.f. 13-04-2016

17.

Services provided by Government or a local authority by way of-

(a) registration required under any law for the time being in force;

(b) testing, calibration, safety check or certification relating to protection or safety of workers, consumers or public at large, required under any law for the time being in force; [Entry 58] w.e.f. 13-04-2016

18.

Services provided by Government or a local authority by way of assignment of right to use natural resources to an individual farmer for the purposes of agriculture; [Entry 59] w.e.f. 13-04-2016

19.

Services by Government, a local authority or a governmental authority by way of any activity in relation to any function entrusted to a Panchayat under article 243G of the Constitution; [Entry 60] w.e.f. 13-04-2016

20.

Services provided by Government or a local authority by way of assignment of right to use any natural resource where such right to use was assigned by the Government or the local authority before the 1st April, 2016:

Provided that the exemption shall apply only to service tax payable on one time charge payable, in full upfront or in installments, for assignment of right to use such natural resource; [Entry 61] w.e.f. 13-04-2016

21.

Services provided by Government or a local authority by way of allowing a business entity to operate as a telecom service provider or use radio frequency spectrum during the financial year 2015-16 on payment of licence fee or spectrum user charges, as the case may be; [Entry 62] w.e.f. 13-04-2016

22.

Services provided by Government by way of deputing officers after office hours or on holidays for inspection or container stuffing or such other duties in relation to import export cargo on payment of Merchant Overtime charges (MOT). [Entry 63] w.e.f. 13-04-2016

 

NOTE :

Construction Service to Government

The service provided to government was made taxable w.e.f. 1-4-2015 consequent to withdrawal of exemption in mega exemption notification. However in the Union Budget 2016-17 (Finance Act 2016) retrospective exemption is granted by insertion of section 102 in Chapter V of Finance Act 1994 on construction service provided to Government. The section 102 is reproduced below for ready reference:

Section 102- Special provision for exemption in certain cases relating to construction of Government buildings

(1) Notwithstanding anything contained in section 66B, no service tax shall be levied or collected during the period commencing from the 1st day of April, 2015 and ending with the 29th day of February, 2016 (both days inclusive), in respect of taxable services provided to the Government, a local authority or a Governmental authority, by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation or alteration of––

(a) a civil structure or any other original works meant predominantly for use other than for commerce, industry or any other business or profession;

(b) a structure meant predominantly for use as––

(i) an educational establishment;

(ii) a clinical establishment; or

(iii) an art or cultural establishment;

(c) a residential complex predominantly meant for self-use or for the use of their employees or other persons specified in Explanation 1 to clause (44) of section 65B of the said Act, under a contract entered into before the 1st day of March, 2015 and on which appropriate stamp duty, where applicable, had been paid before that date.

(2) Refund shall be made of all such service tax which has been collected but which would not have been so collected had sub-section (1) been in force at all the material times.

(3) Notwithstanding anything contained in this Chapter, an application for the claim of refund of service tax shall be made within a period of six months from the date on which the Finance Bill, 2016 receives the assent of the President.(i.e. 14-05-2016)

In consequence to above, a new exemption is also provided in Service Tax Mega Exemption Notification (Entry no 12A). From simple reading of Section 102 of Finance Act 1994 and entry No. 12A of Notification No. 25/2012-ST dated 20-06-2012, it can be noted that exemption from service tax  on construction service provided to government is restored subject to the condition that such work is done under a contract entered into prior to the 1st March, 2015 and on which appropriate stamp duty, where applicable, had been paid prior to such date.

 

6.CBEC Clarification on levy of Service Tax on services provided by Government or a Local Authority (Circular No. 192/02/2016-Service Tax dated April 13, 2016)

 

7.Specified Abatement as per Notification (26/2012-ST) w.e.f. 01-04-2016: 

S. No.

Description of taxable service

Abatement
in %

1.

Services in relation to financial leasing including hire purchase

90

2.

Transport of goods by rail

70

3.

Transport of passengers, with or without accompanied belongings by rail

70

4.

Bundled service by way of supply of food or any other article of human consumption or any drink, in a premises (including hotel, convention center, club, pandal, shamiana or any other place, specially arranged for organizing a function) together with renting of such premises

30

5.

Transport of passengers by air, with or without accompanied belongings in

  • economy class
  • other than economy class
 

60
40

6.

Renting of hotels, inns, guest houses, clubs, campsites or other commercial places meant for residential or lodging purposes.

40

7.

Services of goods transport agency in relation to transportation of goods.

70

7A.

Services of goods transport agency in relation to transportation of used household goods.

60

8.

Services provided by a foreman of chit fund in relation to chit

30

9.

Renting of Motorcab

Note: Cost of fuel should be included in the consideration charged for providing renting of motor-cab services for availing the abatement.

60

9A.

Transport of passengers, with or without accompanied belongings, by—

(a)    a contract carriage other than motorcab.

(b)   a radio taxi.

60

10.

Transport of goods in a vessel

70

11.

Services by a tour operator in relation to,-

(i)   a tour, only for the purpose of arranging or booking accommodation for any person

(ii) tours other than (i) above

90

70

12.

Construction of a complex, building, civil structure or a part thereof, intended for a sale to a buyer, wholly or partly except where entire consideration is received after issuance of completion certificate by the competent authority

70

 

8.Service Tax Deposition liability under Reverse Charge Mechanism (w.e.f. 1-4-2016)

Si.
No.

Description of a service Percentage of
service tax to be
deposited by
Service Provider

Percentage of
service tax to be
deposited by
Service Recipient

1

in respect of services provided or agreed to be provided by an insurance agent to any person carrying on insurance business

Nil

100%

lA

in respect of services provided or agreed to be provided by a recovery agent to a banking company or a financial institution or a non-banking financial company]

Nil

100%

lB

[deleted]

Note: Services provided by mutual fund agents/distributor to a mutual fund or asset management company are put under forward charge, i.e. the service provider is made liable to pay service tax.

lC

in respect of services provided or agreed to be provided by a selling or marketing agent of lottery tickets in relation to lottery in any manner to a lottery distributor or selling

agent of the State Government under the provisions of the Lottery (Regulations) Act, 1998 (17 of 1998)

Nil

100%

2

in respect of services provided or agreed to be provided by a goods transport agency in respect of transportation of goods by road

Nil

100%

3

in respect of services provided or agreed to be provided by way of sponsorship

Nil

100%

4

in respect of services provided or agreed to be provided by an arbitral tribunal

Nil

100%

5

in respect of services provided or agreed to be provided by a firm of advocates or an individual advocate other than a senior advocate by way of legal services

Nil

100%

5A

in respect of services provided or agreed to be provided by a director of a company or a body corporate to the said company or the body corporate

Nil

100%

6

in respect of services provided or agreed to be provided by Government or local authority [***] excluding,- (1) renting of immovable property, and (2) services specified in sub-clauses (i), (ii) and (iii) of clause (a) of section 66D of the Finance Act, 1994

Nil

100%

7

(a)    in respect of services provided or agreed to be provided by way of renting of a motor vehicle designed to carry passengers on abated value to any person who is not engaged in the similar line of business

Nil

100%

(b)   in respect of services provided or agreed to be provided by way of renting of a motor vehicle designed to carry passengers on non abated value to any person who is not engaged in the similar line of business

50%

50%

8

in respect of services provided or agreed to be provided by way of supply of manpower for any purpose [or security services]

Nil

100%

9

in respect of services provided or agreed to be provided in service portion in execution of works contract

50%

50%

10

in respect of any taxable services provided or agreed to be provided by any person who is located in a non-taxable territory and received by any person located in the taxable territory

Nil

100%

11.

in respect of any service provided or agreed to be provided by a person involving an aggregator in any manner

Nil

100%

 

9.Other Amendments

Period of Issuing Demand Notices u/s 73

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. has been enhanced by one year, that is, from 18 months to 30 months.

Interest on Delayed Payment of Service Tax u/s 75 (w.e.f 14-05-2016)

  • Interest rates on delayed payment of duty/tax across all indirect taxes are 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 Rs. 60 Lakh, the rate of interest on delayed payment of Service Tax will be 12%.

 

10.Indirect tax Dispute Resolution Scheme, 2016

A scheme in respect of cases pending before Commissioner (Appeals), the assessee, after paying the duty, interest and penalty equivalent to 25% of duty, can file a declaration, is introduced. In such cases the proceedings against the assessee will be closed and he will also get immunity from prosecution.

However, this scheme will not apply in cases:

  • where prosecution has already been launched
  • involving narcotics & psychotropic substances
  • involving detention under COFEPOSA.

 

11.New Annual Return for Service Provider (Rule 7(3A & 3B) of S. Tax Rules 1994) Now Provider of output services also requires to file an Annual Return for each financial year, by the 30th day of November of the succeeding year in the form as specified by a notification by the Board. However till date no such notification has been issued by the Board.

12.One Person Company: (w.e.f. 01-04-2016)

Now they can pay tax quarterly and on receipt basis.


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