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Changes under Service Tax Proposed in Finance Bill 2016

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Anjali Khurana
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Question Changes under Service Tax Proposed in Finance Bill 2016 - March 2nd, 2016

Changes under Service Tax Proposed in Finance Bill 2016:-

1) Service tax another surcharge from 01st June 2016- “Krishi Kalyan Cess” – 0.5 % . Thus Service tax now effectively will be 14%+0.5%+0.5% = 15 %

2) Legal Service now removed from Reverse Charge Mechanism and brought to direct Service Tax at above effective rate from 01st April 2016.

3) The services provided by mutual fund agent/distributor to a mutual fund or asset management company, are being made taxable under forward charge (removed from Reverse Charge Mechanism) with effect from 1st April, 2016, so as to enable the small sub-agents down the distribution chain to avail small scale exemption having threshold turnover of Rs 10 lakh per year. This will reduce burden of Mutual fund and other similar organisation.

4) From 1st March 2016 Contract pertaining to monorail or metro construction, erection, commissioning or installation of original works will now be liable at 5.6% effective rate plus two surcharge.

5) Service provided by ropeway, cable car or aerial tramway for transport of passenger will now be liable to service tax @ above rate from 01st April 2016.

6) Service tax on transportation of passengers by Air-conditioned Stage carrier will be liable to tax from 01st June 2016 @ 5.6% effective rate plus two surcharge.

7) Impose Service Tax 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 1st June, 2016 so as to complete the credit chain and enable Indian Shipping Lines to avail and utilize input tax credits.

8) With effects from 01st April 2016, the following service are now exempted ---Service provided by:-a) Pension Fund Regulatory and Development Authority (PFRDA) b) Employees’ Provident Fund Organisation (EPFO) c) Insurance Regulatory and Development Authority (IRDA) d) Securities and Exchange Board of India (SEBI) e) services of general insurance business provided under ‘Niramaya’ Health Insurance scheme f) National Centre for Cold Chain Development under Department of Agriculture, Cooperation and Farmer’s Welfare, g) Biotechnology Industry Research Assistance Council (BIRAC) h) way of skill/vocational training by training partners under Deen Dayal Upadhyay Grameen Kaushalya Yojana i) Directorate General of Training, Ministry of Skill Development & Entrepreneurship j) a performing artist in folk or classical art forms of music, dance or theatre is being enhanced from Rs 1 lakh to Rs 1.5 lakh.

9) From 1st March 2016 the construction service in respect of housing project (Urban) Mission/Pradhan Mantri Awas Yojana; low cost houses up to carpet area 60 sq.metres=(645 Square feet) under “Affordable housing in Partnership” ; low cost houses up to a carpet area of 60 square metres in a housing project under any housing scheme of the State Government is exempted from service tax.

10) From 01st April 2016 Service Tax on single premium annuity (insurance) policies is being reduced from 3.5% to 1.4% of the premium.

11) From 01st March 2016 services provided by Indian Shipping lines by way of transportation of goods by a vessel to outside India, will be entitle for Cenvat credit on inputs; input services and capital goods credit.

12) Benefit from retrospective effect i.e. 01st April 2015 (earlier withdrawn from that date) - 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. Thus reduce service tax from 5.6 % to “zero”.

13) 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. Thus reduce service tax from 5.6 % to “zero”.

14) 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 being exempted from Service Tax with effect from 1st March, 2016. Now exempted.

15) “One Person Company” and HUF can from 01st April 2016 pay quarterly Service tax.

16) 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 exchequer, in which case 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%.) – with effect from Finance Bill receives the assent of the President.

17) Cenvat credit on input service will now be available on following abatements ( From 01st April 2016)

a) Credit of input services is being allowed on transport of passengers by rail

b) Credit of input services is being allowed on transport of goods, other than in containers

c) Credit of input services is being allowed on transport of goods in containers by rail at a reduced abatement rate of 60%. (In effect tax will first increase by 1.4 % and then cenvat credit available)

d) Credit of input services is being allowed on transport of goods by vessel

18) 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. Thus effective rate 4.2 % plus above two surcharges. From 1st April 2016

19) The abatement on shifting of used household goods by a Goods Transport Agency (GTA) is being rationalized at the rate of 60%, without CENVAT credit on inputs, input services and capital goods. Thus the effective tax rate is 5.6 % . From 1st April 2016.

20) The abatement rate on services of a foreman to a chit fund is being rationalised at the rate of 30%, without CENVAT credit on inputs, input services and capital goods. Thus the effective tax rate is 9.8 % . From 1st April 2016.

21) A condition mandating inclusion of cost of fuel in the consideration for availing abatement on the services by way of renting of motor-cab is being prescribed with effect from 1st April, 2016.

22) Indirect tax Dispute Resolution Scheme, 2016, wherein 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 being introduced. In such cases the proceedings against the assessee will be closed and he will also get immunity from prosecution.

23) The annual return will also have to be filed by Service Tax assessees, above a certain threshold, taking total number of returns to three in a year for them. This change shall come into effect from 1st April, 2016.

24) Section 73 of the Finance Act, 1994 is being amended so as to increase the limitation period from 18 months to 30 months for short levy/non levy/short payment/non-payment/erroneous refund of Service Tax.

25) The power to arrest in Service Tax is being restricted only to situations where the tax payer has collected the tax but not deposited it to the exchequer, and that too above a threshold of Rs 2 crore. The monetary limit for launching prosecution is being increased from Rs. 1 crore to Rs. 2 crore of Service Tax evasion.

Yet to Announce :-

a) Point of Taxation Rules, 2011 is being amended

b) Cenvat Credit Rules

c) Service tax rules on Compliances
[01/03 22:40] ‪+91 93222 16867‬: No tax on PPF withdrawal; only interest to be taxed in EPF: Govt

01 Mar 2016

The government today has clarified that the popular public provident fund (PPF) scheme will continue to stay out of the tax ambit and that tax will be levied only on accrued interest on 60 percent of employee provident fund (EPF) contribution.

This was confirmed by Revenue Secretary Hasmukh Adhia who spoke to PTI, a day after the Union Budget set the cat among the pigeons when the Finance Minister vaguely referred to tax being referred to PF schemes.

Further, small salaried employees with up to Rs 15,000/month income will be kept out of purview of proposed taxation of EPF, he said.

Following a public outcry, Minister of State for Finance told IBNLive that detailed guidelines will be issued shortly.

"In case of superannuation funds and recognized provident funds, including EPF, the norm of 40 percent of corpus to be tax free will apply in respect of corpus created out of contributions made after April 1, 2016," Finance Minister Arun Jaitley had said in the Budget speech yesterday, noting that the aim was bring superannuation and provident funds in line with the National Pension Scheme's tax structure.

So far, the PPF and EPF have enjoyed the exempt-exempt-exempt (EEE) status, implying no tax will be levied at the stages of investment, interest payout and withdrawal. NPS, on the other hand, has been under the EET tax structure. Experts believe that the differential tax structure has impaired NPS' growth.

The government has so far not clarified what the tax rate would be.

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