New Service Tax Rate in India

A new service tax regime, based on a negative list of exempted services came into effect from July 1st. With this, all services — except the 38 activities put on the negative list — came under the tax at the increased rate of 12 per cent, as announced in the Union budget.

Earlier, service tax was levied on 119 services based on a positive list. The switch-over to a negative list-based approach is aimed at aligning the indirect taxation system to the proposed Goods and Services Tax (GST) regime, which is sought to be introduced to unify the levies of the Centre and the States into a composite system.

With the services sector now accounting for 60 per cent of the GDP, the Finance Ministry of India has set a target of Rs.1.24 lakh crore for service tax collection during 2012-13. This is significantly higher than the Rs.97,000 crore collected during the previous fiscal.

As per the negative list-based approach, services such as auto-rickshaws, metered taxis, entry to amusement parks, betting, gambling, lottery, transport of goods or passengers and transmission and distribution of electricity by distribution companies will not come under the service tax net.

In the education sector, school and university courses, as also approved vocational studies, have been exempted. Other important services exempted from the levy are solemn activities such as funeral, burial, mutate services and transport of deceased.

Likewise, auxiliary educational services and renting of immovable property by educational institutions in respect of education will not be taxed. However, coaching classes and training institutions will be taxed.

Among the other services included in the negative list are those provided to government, local authorities or a government authority for repair and maintenance of an aircraft. Likewise, services provided by advocates to other advocates and business entities up to a turnover of Rs. 10 lakh in the preceding financial year will be exempt from the tax.

Services provided by way of public convenience, such as washroom, bathroom, toilets or urinals, are included in the negative list. Also services relating to work contracts for a scheme under the Jawaharlal Nehru National Rural Urban Renewal Mission or the Rajiv Awas Yojana are excluded from service tax.