Forget the web of rules, service tax is less scary now

The Finance Bill 2012 proposes to usher in a paradigm shift in the manner services will be taxed in future. The transition involves a shift from taxation of 119 service-specific descriptions to a new framework whereby all services will be taxed unless they are covered by any of the entries in the negative list or are otherwise exempted. The new system is a marked departure by way of comprehensive taxation of the entire service sector without getting into complex issues of classification of services.

The salient features of the Bill relating to service tax provisions are:

The rate of service tax has been increased to 12% from a date to be notified.

Concept of negative list introduced in which 17 services in the negative list shall not be liable to service tax, any other services provided shall be liable to service tax with effect from a date to be notified. The effect of this will be that all services provided will be liable to service tax except the 17 services in the negative list and 34 services exempted by way of notification. This move is done with a view to reducing litigation, bringing simplicity and certainty in tax processes, optimising compliance and these are largely driven by the desire to create the required setting for the eventual launch of Goods & Services Tax in a far more familiar environment.

For operationalising the negative list approach, a number of changes have been proposed in Chapter V of the Finance Act 1994. Detailed information regarding these changes shall be made by way of a guidance paper.

All the existing 121 definitions and taxable services shall be replaced with only 55 definitions.  

Now individuals, limited liability partnerships (LLPs) and partnership firms up to a turnover of taxable services of Rs50 lakh are allowed to pay service tax under deferred payment option wherein they will be allowed to pay service tax on the earlier receipt bases instead of billing bases.   

Service tax on life insurance premiums in unit-linked insurance plan (Ulip) products is at 3% of the first year premiums and 1.5% as subsequent year premiums.

Transport of passengers embarking on domestic and international journeys by air has been made chargeable at 12% with 60% abatement.

Rate of service tax on work contract services increased to 4.8% from 4%.  

Time limit for issuance of invoice increased to 30 days from the present 14 days.

Earlier excess amounts up to Rs1,00,000 paid as service tax were permitted to be adjusted, but now this limit has been removed and unlimited amount of adjustment is permitted.

New reverse charge mechanism is being introduced for three services namely, hiring of means of transport, construction and man power supply wherein the onus of payment of service tax is partly on the service provider and partly on service receiver.

If the amount of service tax payable on renting of immovable property till March 6, 2012 is paid along with interest with 6 months from a date to be notified, then there will be no penalty.

Input service distributor rule has been amended.

New service tax return form EST-1 has been introduced in which assessees who paid tax of Rs25 lakh or more in the previous year and new assessees other than individuals and firms are required to file a monthly return and others have to file a quarterly return.

Simplified refund scheme for exporters is on the anvil wherein the new scheme does not require the kind of correlation that is needed at present between exports and input services used in such exports. Duties or taxes paid on any goods or services that qualify as inputs or input services will be entitled to be refunded in the ratio of the export turnover to total turnover.

Provision relating to special service tax audit has been introduced.

Place of provision of Services Rules 2012 is being proposed and the existing Export of Service Rules 2005 and taxation of services provided from outside India rules 2006 will be rescinded.

The time limit of 1 year for issuance of notice for specified categories of offence is raised to 18 months.

Settlement commission provisions are made applicable to service tax.

Revision mechanism is made applicable to the extent possible.

Maintenance collected by resident welfare associations up to Rs5,000 per month is exempt from tax.