If the rise in prices was not hurting enough, the change in service tax
regime will. Effective today, almost all services that we use will be
subject to 12% service tax. Only a few on the negative list and the
exempt list have been spared.
And of course the services offered by the unorganised sector remain unaffected. Some see the changeover as a more efficient way of administering the tax. In fact, India Inc has been in favour of a negative list of services that will not be taxed instead of a positive list which is expanded every year to tax more services.
It is also seen as a step forward towards a comprehensive Goods and Services Tax regime. ET Magazine spoke to tax experts to put together a list of new services on which you will be paying tax.
And of course the services offered by the unorganised sector remain unaffected. Some see the changeover as a more efficient way of administering the tax. In fact, India Inc has been in favour of a negative list of services that will not be taxed instead of a positive list which is expanded every year to tax more services.
It is also seen as a step forward towards a comprehensive Goods and Services Tax regime. ET Magazine spoke to tax experts to put together a list of new services on which you will be paying tax.
Impact on Consumers
1) Speed Posts, Express Parcels
Private couriers were subject to service tax since 1996 but speed post and express parcel service of the post office were spared. That changes from today. Premium postal services and life insurance provided by the post office will attract 12% service tax. Basic postal services, money orders, savings accounts, pension payments, etc remain exempt.
2) First Class & Air-Conditioned Class Travel By Railways
After holding back for several years, the government has finally decided to subject upper class rail travel to service tax. Tax on travel by lower classes, suburban services and Metros would have hurt aam admi and allies such as Trinamool Congress and so they remain exempt.
3) Travel & Holidays Bought From Online Portals
Tickets and overseas holidays bought via e-portals in India and a single ticket bought for many overseas destinations are to be fully taxed. If service providers and recipients are in India, tickets for trips originating in India will be taxed. But if you were to buy, say, separate tickets for the London-New York-London leg of New Delhi-London-New York round trip in London, that leg is tax free.
4) GMAT, GRE Tests
Taking tests such as GMAT and GRE will get more expensive as companies such as Prometric Testing that conduct these examinations will now be subject to service tax. Entrance tests of Indian institutions such as IITs and IIMs will be exempt. CFA Institute's examination fee will also rise. Private tuition providers will now be subject to
service tax if their annual turnover exceeds Rs 10 lakh.
5) Passport & Visa Services
Seeking help of agents to get a passport made or obtain a visa will get more expensive, as these services are provided for a commission. New rules that kick in today subjects commissions charged for providing a services to 12% tax. Visa and passport issuing are sovereign functions and so fees charged by governments will not be taxed.
6) Money Changing
Cash transactions are not subject to service tax but when currencies are changed, forex dealers charge a commission. This commission will be subject to service tax. For the purpose of calculating service tax, the difference between the buying/selling price of the currency and the RBI reference rate may be considered.
7) Mutual Funds Exit Loads
Entry or exit loads paid on purchase or sale of mutual funds will be subject to service tax. Such loads are seen as consideration for documentation, asset management and covering other expenses. Currently, mutual funds are not allowed to charge entry load, but if it is brought back, investors will have to be prepared to take a hit.
8. Actors, Singers & Other Performers
All artists other than those performing folk or classical music, dance or theatre, will now have to pay service tax on services they provide. So when Shahrukh Khan acts in a movie, he will be subject to service tax. Likewise, artists engaged in western music or dance, modern theatres and television serials have to pay service tax. Also in the net are painters and sculptors.
9. Attending Conferences/Seminars
Attending conferences, seminars, workshops, sports and cultural events where a fee is charged will also become more expensive as the participation fee as well as organising of these events will be subject to service tax. Attending roadshows of foreign education institutions too will get more expensive due to service tax.
10) Personalised Services, Fashion Designers
Getting a new wardrobe, particularly designer clothes and accessories, will cost more as designers will be subject to service tax at the rate of 12%. Similarly, services of marriage bureaus, astrologers, numerologists will also be taxed starting today.
Impact on Companies:
1) Independent directors
Services provided by independent directors to companies will be taxed. Independent directors are paid a sitting fee and sometimes retainership for attending meetings and advising the board. Service tax will be calculated on payments made to such directors, as they are not employees of the company.
2) Brand Ambassadors
Hiring brand ambassadors such as Sachin Tendulkar or Priyanka Chopra to promote a product, property, event or a company will cost more as service provided by these stars for promotion or marketing of a brand of goods or endorsement of name, including a trade name and logo, will be taxed.
3) Non-compete fees
If a company pays another consideration as part of an agreement to refrain from competing with it in any specified products, services or geography, that consideration - better known as non-compete fee - will be subject to service tax.
4) Employee retention
Many companies offer attractive monetary packages to exiting senior executives to prevent them from joining a rival for a specific period. While it should be seen as compensation, the government is set to levy service tax on the money paid.
5) Not-for-profit sector
Certain services provided by not-for-profit organisations, particularly an India office or an associate of global NGO, could be taxed. For instance, project management services for which they would enter into contracts with other entities in India.
What is a service?
Service is any activity carried out by a person or entity for another for consideration. Effectively, anything which is not a sale of good or an immovable property is a service.
Are all services to be taxed?
No. The government has put out an exempt list and a negative list. Any service that is included in either of these lists will not be taxed.
Services not taxed
These include services of sub-brokers, mutual fund agents and distributors, business correspondents of banks, etc. 17 services are included in the negative list and 39 services in the mega exemption list. Services provided by governments and local authorities will not be taxed on the whole.
1) Speed Posts, Express Parcels
Private couriers were subject to service tax since 1996 but speed post and express parcel service of the post office were spared. That changes from today. Premium postal services and life insurance provided by the post office will attract 12% service tax. Basic postal services, money orders, savings accounts, pension payments, etc remain exempt.
2) First Class & Air-Conditioned Class Travel By Railways
After holding back for several years, the government has finally decided to subject upper class rail travel to service tax. Tax on travel by lower classes, suburban services and Metros would have hurt aam admi and allies such as Trinamool Congress and so they remain exempt.
3) Travel & Holidays Bought From Online Portals
Tickets and overseas holidays bought via e-portals in India and a single ticket bought for many overseas destinations are to be fully taxed. If service providers and recipients are in India, tickets for trips originating in India will be taxed. But if you were to buy, say, separate tickets for the London-New York-London leg of New Delhi-London-New York round trip in London, that leg is tax free.
4) GMAT, GRE Tests
Taking tests such as GMAT and GRE will get more expensive as companies such as Prometric Testing that conduct these examinations will now be subject to service tax. Entrance tests of Indian institutions such as IITs and IIMs will be exempt. CFA Institute's examination fee will also rise. Private tuition providers will now be subject to
service tax if their annual turnover exceeds Rs 10 lakh.
5) Passport & Visa Services
Seeking help of agents to get a passport made or obtain a visa will get more expensive, as these services are provided for a commission. New rules that kick in today subjects commissions charged for providing a services to 12% tax. Visa and passport issuing are sovereign functions and so fees charged by governments will not be taxed.
6) Money Changing
Cash transactions are not subject to service tax but when currencies are changed, forex dealers charge a commission. This commission will be subject to service tax. For the purpose of calculating service tax, the difference between the buying/selling price of the currency and the RBI reference rate may be considered.
7) Mutual Funds Exit Loads
Entry or exit loads paid on purchase or sale of mutual funds will be subject to service tax. Such loads are seen as consideration for documentation, asset management and covering other expenses. Currently, mutual funds are not allowed to charge entry load, but if it is brought back, investors will have to be prepared to take a hit.
8. Actors, Singers & Other Performers
All artists other than those performing folk or classical music, dance or theatre, will now have to pay service tax on services they provide. So when Shahrukh Khan acts in a movie, he will be subject to service tax. Likewise, artists engaged in western music or dance, modern theatres and television serials have to pay service tax. Also in the net are painters and sculptors.
9. Attending Conferences/Seminars
Attending conferences, seminars, workshops, sports and cultural events where a fee is charged will also become more expensive as the participation fee as well as organising of these events will be subject to service tax. Attending roadshows of foreign education institutions too will get more expensive due to service tax.
10) Personalised Services, Fashion Designers
Getting a new wardrobe, particularly designer clothes and accessories, will cost more as designers will be subject to service tax at the rate of 12%. Similarly, services of marriage bureaus, astrologers, numerologists will also be taxed starting today.
Impact on Companies:
1) Independent directors
Services provided by independent directors to companies will be taxed. Independent directors are paid a sitting fee and sometimes retainership for attending meetings and advising the board. Service tax will be calculated on payments made to such directors, as they are not employees of the company.
2) Brand Ambassadors
Hiring brand ambassadors such as Sachin Tendulkar or Priyanka Chopra to promote a product, property, event or a company will cost more as service provided by these stars for promotion or marketing of a brand of goods or endorsement of name, including a trade name and logo, will be taxed.
3) Non-compete fees
If a company pays another consideration as part of an agreement to refrain from competing with it in any specified products, services or geography, that consideration - better known as non-compete fee - will be subject to service tax.
4) Employee retention
Many companies offer attractive monetary packages to exiting senior executives to prevent them from joining a rival for a specific period. While it should be seen as compensation, the government is set to levy service tax on the money paid.
5) Not-for-profit sector
Certain services provided by not-for-profit organisations, particularly an India office or an associate of global NGO, could be taxed. For instance, project management services for which they would enter into contracts with other entities in India.
What is a service?
Service is any activity carried out by a person or entity for another for consideration. Effectively, anything which is not a sale of good or an immovable property is a service.
Are all services to be taxed?
No. The government has put out an exempt list and a negative list. Any service that is included in either of these lists will not be taxed.
Services not taxed
These include services of sub-brokers, mutual fund agents and distributors, business correspondents of banks, etc. 17 services are included in the negative list and 39 services in the mega exemption list. Services provided by governments and local authorities will not be taxed on the whole.
Source : http://timesofindia.indiatimes.com
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