Analysis of Service tax rate increase from
12.36% to 14%
(Subsuming
EC and SHEC) effective from 01.06.2015
After
the Hon’ble President has given assent to the Finance Bill, 2015 on May 14,
2015, the Ministry of Finance, Department of Revenue vide Notification No.
14/2015ST dated May 19, 2015 has notified increase in the rate of Service tax
from 12.36% to flat 14% (Subsuming Education Cess and Secondary & Higher
Secondary Education Cess) to be effective from June 1, 2015.
Service
Tax Rate
Earlier - 12.36%
New - 14.00%
(all inclusive)
In
respect of certain services like money changing service, service provided by
air travel agent, insurance service and service provided by lottery distributor
and selling agent the service provider has been allowed to pay service tax at
an alternative rate subject to the conditions as prescribed under rule 6 (7),
6(7A), 6(7B) and 6(7C) of the Service Tax Rules, 1994. Consequent to the upward
revision in Service Tax rate, the said alternative rates shall also be revised
proportionately.
The
new rates are summarized in the table below:
|
Service
|
Old Rate
|
New Rate
|
|
Air Travel Agent
|
||
|
Domestic
Booking
|
0.6
percent
|
0.7
percent
|
|
International
Booking
|
1.2
percent
|
1.4
percent
|
|
Life Insurance
|
||
|
First
year premium
|
3
percent
|
3.5
per cent
|
|
Subsequent
year premium
|
1.5
per cent
|
1.75
per cent
|
|
Money changing service
|
||
|
Amount
of currency exchanged upto INR 0.1 million
|
0.12
per cent subject to minimum of INR 30
|
0.14
per cent subject to minimum of INR 35
|
|
Amount
of currency exchanged exceeding INR 0.1 million and upto INR 1 million
|
INR
120 and 0.06 per cent
|
INR
140 and 0.07 per cent
|
|
Amount
of currency exchanged exceeding INR 1 million
|
INR
660 and 0.012 per cent subject to maximum of INR 6,000
|
INR
770 and 0.014 per cent subject to maximum of INR 7,000
|
|
Lottery
|
||
|
Where
guaranteed prize payout is more than 80 percent
|
INR
7,000
|
INR
8,200
|
|
Where
guaranteed prize payout is less than 80 percent
|
INR
11,000
|
INR
12,000
|
POINT
OF TAXATION WHEN THERE IS CHANGE IN EFFECTIVE RATE OF TAX
Point of
taxation involving change in effective rate of tax is governed by Rule 4 of the
POT Rules, which provides for determination of Point of taxation when there is
change in effective rate of tax as mentioned in the table below:
|
S. No.
|
In case a taxable service
has been
provided
|
Invoice has been
issued
|
Payment received
for the invoice
|
Point of taxation
shall be
|
Applicable Rate
|
|
1.
|
BEFORE the change in
effective rate of tax
|
AFTER the change in
effective rate of tax
|
AFTER the change in
effective rate of tax
|
Date of issuance of
invoice or Date of receipt of payment, whichever is earlier
|
New Rate
|
|
2.
|
BEFORE the change in
effective rate of tax
|
AFTER the change in
effective rate of tax
|
Date of issuance of
Invoice
|
Old rate
|
|
|
3.
|
AFTER the change in
effective rate of tax
|
BEFORE the change in
effective rate of tax
|
Date of receipt of
payment
|
Old rate
|
|
|
4.
|
AFTER the change in
effective rate of tax
|
BEFORE the change in
effective rate of tax
|
AFTER the change in
effective rate of tax
|
Date of receipt of
payment
|
New Rate
|
|
5.
|
BEFORE the change in
effective rate of tax
|
BEFORE the change in
effective rate of tax
|
Date of issuance of
invoice or Date of receipt of payment, whichever is earlier
|
Old Rate
|
|
|
6.
|
AFTER the change in
effective rate of tax
|
BEFORE the change in
effective rate of tax
|
Date of issuance of
Invoice
|
New Rate
|
SWACHH
BHARAT CESS
Swachh
Bharat Cess is not notified till date, it will be notified separately at a
later date.
Only
an enabling provision is being incorporated in the Finance Bill, 2015 to empower
the Central Government to impose a Swachh Bharat Cess on all or any of the
taxable services at a rate of 2% on the value of such taxable services. The
cess shall be levied from the date to be notified after the enactment of the
Finance Bill 2015.
Hence,
an illustrative clarification to this effect is much warranted from the Board
before the new rate of Service becoming effective from June 1, 2015.
BALANCE
OF EDUCATION CESS AND SECONDARY AND HIGHER EDUCATION CESS AS ON 01.06.2015
The
question arises what will happen to the balance lying in ‘Education Cess’ and ‘Secondary
and Higher Education Cess’ as on June 1, 2015. Will it be allowed to be adjusted
with Service tax liability as this is being denied in terms of Rule 3(7)(b) of
the Cenvat Credit Rules, 2004 (“the Credit Rules”).
The
same issue arose in Excise when the rate of duty was changed from 12.36% to
12.50% subsuming the Education Cess and Secondary and Higher Education cess on
01032015. Recently, the CBEC has issued a Notification No. 12/2015 Central Excise
(N.T.) dated 30.04.2015 in this regard in case of Central Excise.
It
is thus expected CBEC should come with a clarificatory circular on the above
mentioned issue in case of Service Tax also.
