Budget 2016: The Service Tax Increases to 15%; Ambit gets Revamped

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As the Budget day 2016 dawned upon us, expectations were lofty; would the government ease taxation? What about small savings schemes? Oh, the subsidies, something has to be done about them! While the Budget Speech in itself was quite a drab, it would seem that the devil is in the details.

In this post, we look at how the Budget has altered Service Taxes:

Krishi Kalyan Cess

Alert! Another cess on the horizon. Owing to the success of the Swachch Bharat cess, the Finance Ministry has now decided to come up with the Krisha Kalyan cess. What is it?

The tax (because that’s what it is) of 0.5% will be levied on all the existing taxable services and will come into effect on June 01, 2016. The proceeds from this burden, will be used to improve agricultural practices, and boost welfare of the farmers. Input tax credit will be available against this charge. This basically means that any Taxes Paid on the inputs of the final service that you are providing, will be available to you as a Tax Credit. This concept is the underlying principle of Value Added Tax (VAT) – you only pay taxes on the value that you add in the value chain.

The Krishi Kalyan cess, is proposed to be collected in another way as well. Enter Black Money. A strong and continuing focus of the Finance Ministry has been to pre-empt those with undeclared assets and income, to come forth and do so. Special attention has been given to this focus this year. Any declarants who come forward and declare their undisclosed income, will have to pay 30% taxes on it, plus a 7.5% penalty and an additional 7.5% as a surcharge. This additional charge will also accrue to the ‘Krishi Kalyan’ scheme.

Previously Exempt Services Coming Under the Scanner

The following services are proposed to be slapped with service tax from April 01, 2016.

  • Services provided by an advocate to another advocate or partnership of advocates (14%);
  • Construction & installation of original works pertaining to monorail or metro, in respect of contracts entered into on or after 1st March 2016 (5.6%);
  • Services of transport of passengers by ropeway, cable car or aerial tramway (14%);
  • Service Tax is being levied on transportation of passengers by air conditioned stage carriage (5.6%); Stage carriages are basically larger cabs, that are allowed to carry People and Goods.

New Exemptions Announced

  • Housing projects under Housing For All (HFA) (Urban) Mission/Pradhan Mantri Awas Yojana (PMAY), Low Cost houses up to a carpet area of 60 square metres in a housing project under “Affordable housing in Partnership” component of PMAY, and Low Cost houses up to a carpet area of 60 square metres in a housing project under any housing scheme of the State Government;
  • Life Insurance business provided by way of annuity under the National Pension System;
  • Services provided by Employees’ Provident Fund Organisation (EPFO);
  • Services provided by Insurance Regulatory and Development Authority (IRDA);
  • Services provided by SEBI;
  • General Insurance business provided under ‘Niramaya’ Health Insurance scheme launched by National Trust for the Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation and Multiple Disability;
  • Services provided by National Centre for Cold Chain Development;
  • Services provided by way of skill/vocational training by training partners under Deen Dayal Upadhyay Grameen Kaushalya Yojana;

Additional Fascinating Measures:

  • Indian shipping companies now have to pay taxes only for transporting Goods to India, from outside. Any goods transported outside of India, can be used to avail tax credits.
  • Exemptions on construction for a Governmental authority and canals, dams or other irrigation works are being reinstated after being removed for a year.
  • IIM’s are now exempt from paying Service Tax! Doesn’t apply to their Executive Management programs though.
  • Small changes in taxation for agents in the Mutual Funds industry.
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