The Union budget has retained the exemption limit for service tax at Rs 10 lakh. It has also left the rate of service tax unchanged at 10% plus 2% education cess and 1% higher education cess (effective rate 10.3%).
However, the finance minister has brought under the service tax net eight new services, which are to be liable from a date to be notified after enactment of Finance Bill, 2010.
1. Services of promoting, marketing or organising games of chance, including lottery.
Service provided by any person who is appointed by the state government to advertise, promote and sell lottery tickets and the services provided in relation to promotion or marketing or organising, or assisting in organising games of chance, including lottery, bingo, lotto or online games, whether or not conducted through internet or other electronic networks, is covered under this service. Promotion and marketing of lottery and similar games of chance, which were taxable under ‘business auxiliary service’, have now been introduced as an independent entry in the list of taxable services. Now, agents selling lottery tickets — whether physical or online — will be covered under service tax.
2. Health service provided by any hospital, nursing home, or multi-specialty clinic to an employee of any business entity in relation to health check-up or preventive care, where the payment is made by such business entity directly to such hospital, nursing home or multi-specialty clinic; or 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
The tax on the above mentioned health services would be payable only if and to the extent the payment for such medical check up or treatment, etc is made directly by the business entity or the insurance company to the hospital or medical establishment. Any additional amount paid by the individual (i.e. the employee or the insured, as the case may be) to the hospital would not be subjected to service tax. This is to ensure that an individual is not required to pay a tax for which he cannot take credit.
Individual persons going for a health check-up to hospital or medial establishment were not liable to service tax.
Under this service now hospitals will have to charge service tax to business entities and insurance companies on services provided to them for check-up.
3. Services of maintenance of medical records of employees of a business entity
Service provided by any person in relation to storing, keeping and maintaining medical records of the employees of the business entity is covered under this service. Records maintained by designated hospitals or by the independent record keepers for a charge are also brought under service tax.
4. Services of promotion of a ‘brand’ of goods, services, events, business entity, etc
For example, Aamir Khan is a brand ambassador for Titan Watches, Tata Sky and Samsung Mobiles. He works under a contract of a reasonably long period, where under he is not only required to advertise the goods or services in different media but also to attend promotional, product launching events, make appearances in public activities related to the brand or the brand holder or use such goods or services in public. Such services provided by Aamir Khan are now liable to service tax under this category.
5. Services of permitting commercial use or exploitation of any event organised by a person or organisation
For example, a corporate sponsored cricket match or company sponsored music concert; film award events; celebrities’ marriages; beauty contests are some of such private functions, which a large number of viewers like to see on TV or media. In such cases, companies, broadcasting agencies and video producers are given right to capture these events or programmers for their commercial exploitation in future.
The proposed service now seeks to tax the amount received by the person or organisation who permit the recording and broadcasting of the event from the broadcaster or any other person who seek to commercially exploit the event.
6. Service provided by electricity exchanges
The proposed new service seeks to tax the charges recovered for services in relation to assisting, regulating, controlling the business of trading, processing and settlement pertaining to sale or purchase of electricity by the associations authorised by Central Electricity Regulatory Commission.
Transmission of electricity is exempt from preview of service tax.
7. Services related to copyrights
Copyrights on (a) cinematographic films and (b) sound recording are being brought under the ambit of service tax. However, copyright on original literary, dramatic, musical and artistic work would continue to remain outside the scope of service tax. For example, royalties paid to producer of a film by a TV channel for telecasting the same on TV shall be charged to service tax under this category.
8. Special services provided by a builder, etc to the prospective buyers such as providing preferential location or external or internal development of complexes on extra charges
Generally, builders charge a premium for special view flats (sea facing, garden facing, etc), lucky number flats, flat designed as per vastu shastra. They also charge floor rise over the base rate quoted per square feet. They also charge extra for internal or external development charges which are collected for developing/ maintaining parks, laying of sewerage and water pipelines, providing access roads and common lighting, etc.
Such charges are now liable to service tax under this category. Charges for providing parking space have been excluded from the levy of service tax. Development charges, to the extent they are paid to state government or local bodies, would be excluded from the taxable value levy. Further, any service provided by resident welfare associations or cooperative group housing societies consisting of residents/owners as their members would not be taxable under this service.
(This is the first part of a three-part series)
The writer is with M Sheth & Co, a chartered accountancy firm in Mumbai, and can be reached at firstname.lastname@example.org.