Friday, February 26, 2010

Brief Writeup on changes made in Service Tax Law by Budget 2010

Gist of Amendments in existing Service tax law

  1. No change in the rate of service tax – it remains at 10.30 %
  2. Service tax on the real estate sector has been introduced in a new avatar whereby from the date to be notified sale of commercial or residential property by the builder or any other person authorised by him shall be taxable if the builder or person authorised by him receives any payment before receipt of construction completion certificate from competent authority. In other words if in cases of sale of real estate (residential or commercial) where any sum of money is received by the builder from the prospective buyer before receiving the construction completion certificate then such entire transactions shall be taxable. If this becomes law the real estate Construction sector is going to witness a big shock. Further details if any are awaited.
  3. The ambit of Port Services has been reduced to include only those port services provided within the precincts of the port.
  4. Retrospective amendment has been introduced to tax all commercial training or coaching service providers irrespective of their constitution or whether or not they make profit. This amendment is applicable from 1st July 2003. Hence all charitable organizations providing commercial training services shall now become taxable and that too on their entire earning since 1st July, 2003. Moreover definition of vocational training institute has been changed (vide notification no. 3/2010) whereby w.e.f. 27.02.2010 only those institutes which affiliated to the National Council for Vocational Training, offering courses in designated trades as notified under the Apprentices Act, 1961(52 of 1961) shall on be tax free.Prior to this budget sponsorship services were taxed only in the hands of body corporates or firms. Now the ambit of sponsorship services has been extended to include all persons receiving such services.
  5. Earlier sponsorship services in relation to sports events were exempt from tax which now would become taxable from the date to be notified.
  6. Previously service provided by aircraft operators to passengers flying to international destinations on classes above economy class was taxable. Now the domestic travel as well as international travel services provided by aircraft operators shall be liable to service tax irrespective of the class chosen to travel. Now on Domestic travel will become dearer by 10.3%.
  7. An explanation has been added to section 65 (105) (zzzr) (for Auctioneers Service) which declares that “auction by the Government” means the Government property being auctioned by any person acting as auctioneer.
  8. Retrospective amendment has been brought in w.e.f 01.06.2007 to negate the fallout of Delhi HC decision in case of Home Solutions. The activity of 'renting itself' becomes taxable service from 01.06.2007. So all hopes of a favourable order from the Supreme Court have been negated with this retrospective amendment.
  9. From the date to be notified leasing of vacant land for construction of building or temporary structure at a later stage to be used for furtherance of business or commerce shall also be taxable.
  10. Earlier information technology software services were taxable only if the same were provided for use in business or commerce. This major requirement has now been done away with & now these services shall be taxable irrespective of the purpose thereof hence from now on software related services provided for use in Education or religious purposes shall also become taxable.
  11. An explanation to section 73 (3) of the finance act has been added so as to declare that if service tax & interest are paid before issuance of SCN then no penalties shall be leviable. Earlier this section provided only that if the tax & interest were paid prior to issuance of SCN then in those cases no SCN shall be issued.

New services brought under the tax net:

  1. Services provided by Hospitals, nursing homes or multispecialty clinics providing services in the following cases have now been made taxable from the date to be notified:
    a. To an employee of any business entity, in relation to health check-up or preventive care, where the payment for such check-up or preventive care is made by such business entity directly to such hospital, nursing home or multi-specialty clinic; or
    b. To a person covered by health insurance scheme, for any health check-up or treatment, where the payment for such health check-up or treatment is made by the insurance company directly to such hospital, nursing home or multi-specialty clinic;
    Hence treatments provided to any person under the cashless facility offered insurance companies would now become taxable. It would be pertinent to note that if treatments are provided where payments are not made directly to the hospitals shall not be taxable. In other words if the same are reimbursed to the insured it shall not be liable to tax.
  2. Services provided to any business entity, by any other person, in relation to storing, keeping or maintaining of medical records of employees of a business entity shall now become taxable;
  3. Promotion, marketing or endorsement of brand of goods, services, event, tradename, logo or housemark of a business entity shall now become taxable.
  4. Services provided by way of granting the right or by permitting commercial; use or exploitation of any event including an event relating to art, entertainment, business, sports or marriage shall be made taxable from the date to be notified;
  5. Services provided by an approved electricity exchange in relation to trading, processing, clearing or settlement of spot contracts, term ahead contracts, seasonal contracts, derivatives or any other electricity related contract shall become taxable;
  6. Services provided by way of transferring temporarily; or permitting the use or enjoyment of, any copyright defined in the Copyright Act, 1957, except the rights covered under sub-clause (a) of clause (1) of section 13 of the said Act;” shall now become taxable;

Builders selling residential or real estate properties whereby they charge an extra amount to provide any preferential location or development of such property to any buyer, such extra charge shall now be leviable to service tax.




DISCLAIMER

The analysis/views in this booklet do not purport to be and should not be treated as legal opinion. Nothing contained herein can substitute appropriate legal opinion in fact specific situations that affect you or your enterprise.

Nitesh Jain

Chartered Accountant

http://www.niteshjain.co.in/