7/6/2012
EXEMPTIONS, ABATEMENTS & VALUATION UNDER SERVICE TAX
Mumbai ♦ Pune ♦ New Delhi ♦ Aurangabad
Pune Office Level 3, Business Bay, Plot No. 84 Wellesley Road, Near RTO, Pune 411 001, Maharashtra, India Tel: +91 20 26225500
www.mzsk.in
Table of Contents Flow of Taxability Mega Exemptions Valuation Abatement Reverse Charge and Joint Charge Mechanism Point of Taxation Rules
1
7/6/2012
Flow to verify taxability
Mega Exemptions Notification No 25/2012 S.T. dated 20.06.2012 provides for following exemptions
Services provided to UN or other specified organizations.
If service provider outsources the entire contract, whether the exemption will be available to the outsourced service provider?
Health Care services
Cosmetic surgery, hair transplant, etc are taxable Cosmetic surgery to remove inborn abnormalities are covered
Service by veterinary clinics
Renting of religious places meant for general public and conduct of any religious ceremony
Religious property not meant for general public, if rented than taxable
Whether conduct of marriage is a religious ceremony?
Testing of drugs and vaccines by organizations approved by Drug Controller General of India
2
7/6/2012
Mega Exemptions
Service provided by entity registered under Section 12AA of IT Act,1961 restricted to charitable activities Charitable activities includes
Activities relating to Public heath
Advancement of religion and spirituality
Advancement of educational programmes or skill development for specified person
Preservation of environment, watershed, forests and wildlife
Advancement of any object of general public utility subject to specified monetary limits
Trust providing autonomous courses are taxable (will education be covered in object of public utility) Old age homes
Mega Exemptions
Individual Advocate/Arbitral tribunalArbitral Tribunal services provided to • Any person other than business entities • Business entity having turnover less than 10 lakhs in preceding financial year
Legal Services by advocate or firm of advocate • To other advocate or firm of advocate • Any person other than business entities • Business entity having turnover less than 10 lakhs in preceding financial year
Services by member of arbitral tribunal (like judges) • To an arbitral tribunal
This exemptions is important for everyone other than advocates as the entire liability is payable on reverse charge basis
Consultants are now taxable
3
7/6/2012
Mega Exemptions
Coaching or training in arts, culture or sports
Whether photography trainings will be covered?
Services provided to a recognized sports body by
Service Provider
Service Recipient
Taxability
Individual as a player, referee, umpire, coach or manager, etc by way of participation in a sporting event organized by the recognized sports body
Recognized sports body
Exempt
Recognized sports body
Another recognized sports body
Exempt
Individuals such as selectors, commentators, curators, technical experts etc.
Recognized sports body.
Taxable
Sponsorship of sporting events organized by specified bodies
Mega Exemptions
Following services to and by an educational institutes in respect of education are exempt
Auxiliary education services
Imparting skills, knowledge or development course
Enhancement activities for students or faculty includes outsourcing of such services
Admission, conduct of examination, transportation of students and staff and catering services covered under mid-day meal scheme sponsored by government
Renting of immovable property
Whether renting of movable properties (like lab equipments, projectors, buses, etc) will be exempt
Is ICAI covered under Service Tax?
4
7/6/2012
Major Exclusions/Exemptions under Negative List and Mega Exemption notification
The following services would be excluded in terms of the transactions as undertaken by the entities:
Nature of Services
Construction
Erection, Commissioning and Installation
Completion and Finishing Services
Repairs and Maintenance
Renovation
Site Formation
Road
Non Taxable
Non Taxable
Non Taxable
Non Taxable
Non Taxable
Taxable
BuildingsReligious Trust
Non Taxable
Non Taxable
Non Taxable
Non Taxable
Non Taxable
Taxable
JNNURM
Non Taxable
Non Taxable
Non Taxable
Non Taxable
Taxable
Taxable
Airport/ Port
Non Taxable
Non Taxable
Taxable
Taxable
Taxable
Taxable
Single Residential Units
Non Taxable
Non Taxable
Taxable
Taxable
Taxable
Taxable
Mega Exemptions
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 – (site formation not covered)
Civil structure or any other original work not meant for business or commerce
a specified monument and structures
Educational, clinical and art/cultural structure
Canal, dam and other irrigational works
Pipeline, conduit or plant for water supply/treatm ent or sewage treatment/dis posal
Residential complex meant for self use/employee
5
7/6/2012
Mega Exemptions
Services provided by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of, (site formation not covered)
road, bridge, tunnel or terminal for road transportation by use by general public
a civil structure or any other original works pertaining to a scheme under JNNRUM
Building for religious purpose
a pollution control except not a part of factory
Mega Exemptions
Services by way of construction, erection, commissioning, or installation of original works pertaining to,(completion, repairs, renovation, site formation, etc not covered)
an airport, port or railways, including monorail or metro
a single residential unit otherwise than as a part of a residential complex
Low cost houses up to 60 sq.mts per house
postharvest storage infrastructur e for agricultural produce including a cold storages for such purposes
Pipeline, conduit or plant for water supply/trea tment or sewage treatment/d isposal
mechanized food grain handling system, machinery or equipment for units processing agricultural produce as food stuff excluding alcoholic beverages;
6
7/6/2012
Mega Exemptions
Copyright
Temporary transfer /permitting the use of Copyright relating to
Taxability
Explanation
a) Original literary, dramatic, musical, artistic work or cinematographic film.
Exempt
For example: Author having copy right of a book written by him would not be required to pay service tax on royalty amount received from the publisher for publishing the book.
b)Other than (a)
Taxable
For example: Sound recording
Transportation of passengers with or without belongings subject to few conditions
Services by way of parking to general public
Whether parking of malls, multiplex etc. will also be exempt?
Selected general insurance business services provided under specified scheme.
Mega Exemptions
Services by a performing artist in folk or classical art forms of (i) music, or (ii) dance, or (iii) theatre, excluding services provided by such artist as a brand ambassador.
Is performance in western music exempt?
Services by way of collecting or providing news by an independent journalist, Press Trust of India or United News of India.
Accommodation facilities by hotels, etc : Declared tariff of a room below INR 1000 per day.
Restaurant not having air-conditioning/central air-heating facility and liquor license
Services by way of transportation by rail or a vessel from one Place in India to another of specified goods.
7
7/6/2012
Mega Exemptions
Services provided by a goods transport agency by way of transportation of
Fruits, Vegetables, Eggs, Milk, Food grains or Pulses in a goods carriage
Consignment in a single goods carriage freight not exceeding INR 1500
Single consignee in the goods carriage does not exceed INR 750
Hiring Services
Recipient
Condition
State transport undertaking
Motor vehicle meant to carry more than 12 passengers
Goods Transport Agency
Hiring of trucks
Mega Exemptions
Service provided to Government, a local authority or a governmental authority
any function ordinarily entrusted to a municipality in relation to water supply, public health, sanitation conservancy, solid waste management or slum improvement and up gradation; or
repair or maintenance of a vessel or an aircraft.
Service provided by Incubatee up to total turnover 50 Lakh in a financial year subject to certain conditions.
Services by unincorporated body or registered non-profit entity to its own mebers by mean of reimbursement or share of contribution
As a trade union
Activity which is not taxable under service tax
Members of housing society upto INR 5000
8
7/6/2012
Mega Exemptions
Services by the following persons in respective capacities Service Provider
Service Recipient
A Sub-broker or an authorised person
Stock broker
An Authorised person
A Member of a Commodity Exchange
A Mutual fund agent or distributor
Mutual Fund or Asset Management Company for distribution or marketing of Mutual fund
Selling or Marketing agent of lottery Tickets
A Distributer or a Selling Agent
Selling Agent or a distributor of SIM cards or recharge coupon vouchers A Business facilitator or a business correspondent
A Banking Company or an Insurance Company in a Rural Area
Sub-contractor providing works contract services
Another contractor providing exempt works contract services
Mega Exemptions
Intermediate production process amounting to job work in relation to
Agriculture, printing, textile, specified jewellery, specified coatings in relation to cycles or sewing machines
Any goods on which duty is to be paid by principal manufacturer
Services by an organizers to any person in respect of a business exhibition held outside India.
Making telephone Calls From.
Departmentally run public telephone
Guaranteed Public Telephone operating only for Local Calls
Free telephone at Airport and hospital where no bills are being issued.
Services by way of slaughtering of bovine animals.
9
7/6/2012
Mega Exemptions
Provided by service provider located in a non- taxable territory. Service Provider
Service provider located in a non- taxable territory E.g. Jammu & Kashmir
Service Recipient Government, a local authority or an individual in relation to any purpose other than industry, business or commerce. Charitable entity as per section 12AA of the Income tax Act, 1961 Person located in a non-taxable territory
Services by ESIC- (Whether PF will be exempt? )
Services by public library, public toilet, municipal functions by municipality.
Service by way of transfer of going concern
Valuation
Charging section-Section 67 of Finance Act 1994
Valuation of taxable services shall be done as per the new sec. 67A which states that the The rate of service tax, value of a taxable service and rate of exchange shall be the rate as applicable at the time when the taxable service has been provided or agreed to be provided. "rate of exchange" means the rate of exchange referred to in the Explanation to section 14 of the Customs Act, 1962.‘;
This has a impact in cases where invoices are issued but payment is received in installments later and there is a difference in the value in Rupees owing to foreign exchange fluctuations.
Major Impact on ITSS service provider as exchange rate for export billing shall be taken as per rate of exchange notified by CBEC as per Custom Act.
10
7/6/2012
Consideration: Meaning
Consideration includes monetary as well as non-monetary consideration…. Is this right??
Non obligatory grants/donations are not consideration
Consideration not linked to services not covered.
For e.g. Security deposits forfeited for damages done.
However advances received for cancellation of contract for service would be taxable.
Valuation – For Works Contractor (composition option)
Nature of service
From 01.07.2012 (Taxable %)
• A) Original works
• 40%
• B) maintenance or repair or reconditioning or restoration or servicing of any goods,
• 70%
• C) All works contract other (A) and (B in relation to immoveable property
Conditions for CENVAT • All the case CENVAT credit in respect of input services and capital goods is eligible
• 60%
Note : Alternate option of paying under rule 2A (deduction of material is also available)
11
7/6/2012
Valuation for sale of Flats - Abatement
Option to pay tax on 25% value of flat/unit if the same includes value of land. (effective rate 3.09%)
In case of extra work, if a part of the agreement – can avail abatement.
In case of extra work not a part of agreement, tax to be paid as per Works Contract composition scheme on 60% of the value. (Effectively @ 7.42%).
In case of maintenance deposit which is refundable and accounts are provided, no tax needs be paid. However in case of maintenance charges being collected, tax needs to be discharged @ 12.36% on 60% value (effectively @ 7.42%)
In case of miscellaneous charges collected over and above flat value, to be taxed @ 12.36%.
Valuation- Hospitality Nature of service
From 01.07.2012 (Taxable %)
Impact (Effective Rate)
Accommodation service
60%
7.2% + 3% cess on tax
Restaurant services
40%
4.8% + 3% cess on tax
Mandap keeper services
70%
8.4% + 3% cess on tax
Outdoor caterer
60%
7.2% + 3% cess on tax
Bundled Services (Food+ accommodation +renting of premises)
70%
8.4% + 3% cess on tax
All other services( excluding banking and financial Services)
100%
12% + 3% cess on tax
Please note that availing the above abatement and paying taxes in all cases as against any of the existing methods followed is advised to avoid litigation and get maximum benefits.
12
7/6/2012
Valuation- Tours and Travels Nature of Services
Abatement Conditions Rate Services by a tour operator in relation to,25 (i) No CENVAT credit (i) a package tour (ii) Invoice is issued of inclusive of charges of tour 10 (i) No CENVAT credit (ii) a tour, if the tour operator is providing (ii) Invoice should be indicative of accommodation services solely of arranging or booking charges accommodation for any person in relation (iii) Not available when income earned as commission to a tour agent (iii) any services other than specified at (i) and (ii) above.
40
(i) No CENVAT credit (ii)Invoice is issued for gross charges of the tour
Valuation- General
Money Changing Services Slabs of the sum If the sum is upto Rs 100,000
Service tax payable 0.12% of the sum, subject to minimum of Rs 30 If the sum is between Rs 100,000 and Rs Rs 120 + 0.06% of the sum exceeding Rs 10,00,000 1,00,000 If the sum is greater than Rs 10,00,000 Rs 660 + 0.012% of the sum exceeding Rs 10,00,000 subject to maximum of Rs 6000
Reimbursement of expenses in case of reverse mechanism : Erstwhile rule 7 of valuation rules dealing with consideration paid in case of import of services has been deleted and has been brought on line with domestic services.
13
7/6/2012
Other abatements Description of taxable service
Percentage
Conditions
Services in relation to financial leasing including hire purchase
10
Nil.
Transport of passengers, with accompanied belongings by rail
or without
30
Nil.
Transport of passengers by air, with or without accompanied belongings
40
No CENVAT credit of Inputs or capital goods should be taken
Services of goods transport agency in relation to transportation of goods.
25
No CENVAT credit
Services provided in relation to chit
70
No CENVAT credit
Renting of any motor vehicle designed to carry passengers
40
No CENVAT credit
Transport of goods in a vessel
50
No CENVAT credit
Reverse Charge Mechanism
Meaning: The reverse charge mechanism means a mechanism where the 'Service recipient’ is liable to pay service tax instead of 'Service provider’.
In this reverse charge mechanism provided under service tax law, the 'Service recipient’ is liable to pay whole of service tax.
The notification deals with what are the services on which reverse charge mechanism is applicable and the proportion in which the 'Service recipient’ of services is liable to pay the service tax.
14
7/6/2012
Reverse Charge Mechanism w.e.f .01.07.2012 (relevant extract) Service nature
Liability of Service Provider
Liability of Service Recipient
Goods Transport Agencies (in case of specified service recipient) Note: The abatement of 75% continues
NIL
100%
Sponsorships provided to partnership firm or corporate entity
NIL
100%
Services provided by Individual/Firm of Advocate to business entity
NIL
100%
Services provided by a person in non taxable territory to a person located in taxable territory (i.e. import of service)
NIL
100%
Support Services Provided by Government excluding renting of immovable property
NIL
100%
Joint Charge Mechanism
Meaning: Joint charge mechanism means a mechanism where the 'Service recipient’ is also made liable to pay service tax on a specified percentage of the service along with the ‘Service provider’ instead of the 'Service provider’ being liable for the entire liability payment.
The notification specifies the services on which joint charge mechanism is applicable and the proportion in which the 'Service recipient’ of services is liable to pay the service tax.
Joint charge mechanism is applicable when provided by a non – corporate service provider to a corporate business entity. Cenvat credit of the tax paid can be availed on the part of service tax paid even by the service recipient.
15
7/6/2012
Joint Charge Mechanism w.e.f .01.07.2012 (relevant extract) Service nature
Liability of Service Provider
Liability of Service Recipient
Rent – a – Cab where abatement 60% is availed
NIL
100%
Supply of Manpower for any purpose
25%
75%
Works Contract Service
50%
50%
Note : Where abatement is not availed, service provider and service receiver are liable to pay on 60% and 40% of service value respectively. However as per the common industry practice, is for availing abatement by small service providers and hence it is always advisable to pay tax on 100% amount by the service provider.
Note: Care needs to be taken in case of reimbursements to employees etc.
Impact of Point of taxation Rules
Time of provision of service shall be earliest of the following dates:
Date on which invoice is issued (If invoice is not issued within 30 days (45 days in case of Banking and Financial Services) of completion of provision of Service, then: Date of Completion of Service) OR
Date of receipt of payment (including advance payment)
Exemption is provided to non corporates having turnover less than 50 lakhs from the application of the above. These assessees can opt to pay tax on receipts basis.
16
7/6/2012
General Rule
Date of payment shall be earlier of the following: Date on which payment is entered in the books of accounts OR Date on which payment is credited in the bank account
However, in following cases date of payment should be taken as ‘credit in the bank account’ Change in effective rate of tax Service is being taxed for the first time Credit in the bank account is after 4 days from the date of change in effective rate of tax or from the date when service is being taxed for the first time Payment is made by an instrument credited to a bank account
Major impact of Point of taxation Rules
Point of taxation in case of reverse charge or joint charge mechanism shall be the date of on which payment is made.
However, if payment is not made within 6 months from the date of invoice, then the PoT shall be earliest of the following dates:
Date on which invoice is issued (If invoice is duly issued within 30 days (45 days in case of Banking and Financial Services) – Date of Invoice. If invoice is not issued in time : Date of Completion of Service)
This makes it pertinent to keep a tab on payment dates even for domestic payments ; otherwise the liability could date back and create interest liabilities under service tax.
In case of import of service from associated enterprise, the PoT shall be the date of debit in the books of accounts of the person receiving the service or date of making the payment whichever is earlier. This position continues as earlier.
17
7/6/2012
www.mzsk.in
Thank You… CA Sagar Shah Partner Mumbai Office The Ruby, Level 9, North West Wing, Senapati Bapat Marg, Dadar (W), Mumbai – 400028, INDIA
New Delhi Office L-11, Lower Ground Floor, Malviya Nagar, New Delhi – 110017, INDIA
Pune Office Level 3, Business Bay, Wellesley Road, Near RTO, Pune – 411001, INDIA
Aurangabad Office C-6, Balaji Apartments, Behind Kohinoor Plaza, Nirala Bazar, Aurangabad – 431001, INDIA
18
