The Hindu : Business : Service tax: New regime from June 16

Online edition of India's National Newspaper
Wednesday, Jun 08, 2005

Business

Business

Service tax: New regime from June 16

Special Correspondent

Exemption limit fixed at Rs. 3 lakh turnover

NEW DELHI: A new service tax regime will come into effect from June 16, covering houses and flats in residential complexes and eight other services. Small service providers will be out of the purview of this levy. Services received and consumed abroad will now be exempt from this tax.

The Finance Ministry issued notifications on Tuesday bringing nine new services under the service tax net including construction of residential complexes having over 12 residential houses or apartments together with common areas.

The 10 per cent service tax and 2 per cent education cess will now cover transport of goods through pipeline, site formation and clearance, excavation and earth-moving and demolition services, dredging of rivers, ports, harbours, backwater or estuary, survey and map making services, cleaning services, membership of club or association, packaging services and mailing list compilation and mailing. The expansion of service tax is expected to net Rs. 17,500 crore for the Central Exchequer in the current fiscal as against Rs. 14,000 crore last year.

Clarifying the new provisions, the Advisor to the Finance Minister, Parthasarathy Shome, said the service tax on residential flats would be levied only on the construction services. The abatements now available for business construction had been extended to residential construction. He said there would be 67 per cent abatement for turnkey contracts and tax would be levied on the remaining 33 per cent of the cost.

Labour contract

In the case of labour contract, the service tax would be on the entire contract rendered by the builder as the owner bears the input material costs.

Briefing newspersons, he said the service tax on residential complexes would not, however, apply in the case of what were known as "builder's flats'' which were constructed by building contractors purely for sale. In such cases, he said there was no outsourcing of services for purposes of construction.

The provision of tax was meant to apply largely to big developers of residential complexes where the levy would be "embedded" into the cost for buyers, he said.

Mr. Shome said though the budget speech for 2005-06 had mentioned the introduction of a threshold of Rs. 4 lakh turnover, it had now been kept at Rs. 3 lakh turnover.

He said as a general trade facilitation measure, any taxable service received and consumed outside India by an individual, not in the course of business, would now be exempt from the levy of service tax.

Another five areas of exemptions had been notified, he said, largely to bring the tax in line with global practices. These included services bought by the shipping industry when these were bought and consumed abroad, the chain of manufacture in the diamond and gold studded gems industry, port construction services, site formation for infrastructure and the abatement given to residential construction on the lines of that existing for business construction activity.

The scope of several existing services has been expanded for commercial or industrial construction, erection, commission and installation, maintenance and repair, broadcasting services including those by MSO and DTH, sound recording, video-tape production, restoration of motor cars, beauty parlours, manpower recruitment, franchisees, business auxiliary services and outdoor catering.

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