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Work Shop on New Regime of Taxation of service-part I


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Work Shop on New Regime of Taxation of service-part I

  1. 1. Presents A Knowledge Master Class On “Understanding New Regime of Service Taxation in India” Conducted by Dr. Sanjiv Agarwal FCA, FCSThursday,13th December, 2012Gurgaon © Dr. Sanjiv Agarwal 1
  2. 2. SESSION – I Overview of Taxation ofServices and Major Changes 2
  3. 3. This Presentation Covers • Economic Overview • Overview of Taxation of Services – Past and Present • Major Changes 3
  4. 4. Indian Economy – An Overview India’s economy is the 11th largest economy in the world and the second fastest growing even in today’s recession World is presently facing recession-II but Indian economy is still better than comparable economies. Agriculture, services and industry are the major sectors of Indian economy. Contribution of different sectors in March, 2012 was :  Agriculture 19%  Services 59%  Industry 22% to be contd……. 4
  5. 5. Service Tax Share of Services in GDP Agricult ure 19% Service Sect orIndust ry 59% 22%GDP C O MPO S ITIO N IN MARC H, 2012 5
  6. 6. Growth in Tax GDP Ratio – Slow but Steady Years Tax GDP ratio2003-04 9.2%2007-08 11.9%2009-10 9.7%2010-11 10.3%2011-12 10.1% 6
  7. 7. Taxonomy of Indian TaxationTAXATION POWERS OF UNION Income Tax – on income, except agricultural income Excise Duty – on goods manufactured Custom Duty – on imports Service Tax – on specified services Central Sales Tax – on inter-state sale of goods Stamp Duty – on 10 specified instruments to be contd….. 7
  8. 8.  Introduced in India in 1994 as a simple, modest tax with just three services. Service tax – an indirect tax. Approach to Service Tax – Selective as against comprehensive one. Desirable from revenue, equity and economic view point. Governed by Finance Act, 1994 and a dozen of rules. Legislative dependence on other laws. Scattered and heterogeneous large mass of service providers as well as wide spectrum of services. Jurisdictional application. 8
  9. 9. Selective Approach to Service Tax  Selective v Comprehensive approach  Taxation by choice  Service not defined but taxable service defined.  > 120 taxable services [section 65(105)]  Resulted in distortions / prejudice  Untapped tax potential  Economically unjustified  Issues – Classification, Illogical definitions, Constitutional challenges, deemed services etc. 9
  10. 10. Shift to Comprehensive Approach  W.e.f. 1st July 2012  Finance Act, 2012 – A land mark Act to shift from positive to negative approach.  It took 18 years to shift from selective approach (positive) to comprehensive approach (negative )to tax services  All services to be taxed other than services specified in the negative list and exempted services – Section 66B. 10
  11. 11. Taxation of Services by Finance Act, 2012 All Services (including declared Services (-) Specific Exclusions (-) Negative List Services (-) Exemptions (=) Taxable Services 11
  12. 12. New system of taxation of services Negative list (17 in number) specified through statutory provisions – Section 66D. „Service‟ defined for the first time. „Negative List‟ and „declared services‟ also defined. 12
  13. 13.  Section 65 Old definitions of Services / Taxable Services Section 65A Classification of Services Section 66 Charge of Service Tax Section 66A Charge of Service Tax on Services received from outside India. Import of Service Rules, 2006 Export of Service Rules, 2005 13
  14. 14. New Provisions in Service Tax Section 66 B deals with charge of service tax on or after Finance Act, 2012 Section 66 C provides for determination of place of provision of service. Section 66 D comprises of negative list of services Section 66 E comprises of the services which constitute declared services Section 66 F provide principles of interpretation of specified description of services or bundled services 14
  15. 15.  All services Taxable [section 65B (44)] Declared services Taxable (section 66E) Services covered under Not Taxable negative list of services (section 66D) Services exempt under Mega Exempted Notification No. 25/2012-ST dated 20.6.2012 Other specified Exemptions Exempted 15
  16. 16. GST: A Common Tax onGoods Services 16
  17. 17. • Setting up of empowered committee for GST (like VAT) which can steer the road map into action - done• Broaden the tax base for excise duty (presently 40% comes from petroleum products) – being done• Finishing area based and product based exemptions – being done• Rationalization of concessions and exemptions including that on exports – being done• Expanding service tax to almost all services – negative list introduced• Common/unified tax rate for goods and services which may be ideally, revenue neutral (a suitable GST rate) – dual tax proposed• Avoiding or minimizing differential tax rates – under discussions• Abolition of other small taxes - under discussions• Abolition of CST in a phased manner - being done• Power to levy service tax on select/agreed services to States - under discussions• Issue of inter-State services and goods movement vis-à-vis levy of duty or tax to be sorted out - under discussions• Revenue sharing mechanism to be rationalized - under discussions 17
  18. 18. Budget 2012 No announcement on GST rollout date GST to be implemented in consultation with the States at the earliest GST network (GSTN) likely to be in place from August, 2012 (not yet done) GSTN to implement common PAN based registration, return filing and processing of payments for centre and all states on a shared platform. Bringing closer of Service Tax and Central Excise for transition to GST Drafting of model legislation for CGST and SGST under progress. Common forms for Service Tax and Central Excise registration and return proposed. Place of Supply Rules, 2012 to trigger debate to assess issues that may arise in taxation of inter state services for eventual launch of GST. 18
  19. 19. Past Recent Past Now & FutureNational GST Dual GST ??????? …or end of beginning !! 19
  20. 20.  Objective to widen tax base Service Tax law to be shorter by about 40 percent Effective rate of Service Tax shall be 12.36 percent w.e.f. 01.04.2012 including education cess. Definition of ‘service’ finds place in statutory provisions All services to be taxed including a set of services called ‘declared services’ Negative list of services containing 17 broad service categories to be out of Service Tax ambit. Withdrawing of many existing exemptions / abetments or their rationalization 20
  21. 21.  Place of provision of service rules will determine the location of service and become be basis of taxation. Withdrawal of export of service rules and import of service rules in view of place of provision of service rules coming into operation. Concept of taxable territory and non- taxable territory brought in Basis of charge of Service Tax shifted under new section 66B. Taxation of Service to be determined by provision of service in taxable territory and non taxable territory. Classification of service criteria replaced by new section 66F on interpretation principles of specified description of service or bundled services. 21
  22. 22.  Consequent upon change in service tax rates, there is change of service tax rate in composition scheme and specified rates w.e.f. 1.4.2012 (Composition scheme for works contract withdrawn w.e.f 1.7.2012) Penalty wavier for arrears paid within specified time in respect of renting of immovable property service. Retrospective exemption to road repairs and repairs etc of non commercial government buildings. Under new reverse charge mechanism, onus of paying Service Tax will be shared by service provider and service receiver in case of specified services. Service Tax on taxable services provided by service provider located in Jammu & Kashmir state liable under reverse charge. New Accounting Codes for payment of tax under new regime ( for July – November 2012) Tax Collection 00441089 Other Receipts 00441090 Penalties 00441093 Deduct Refunds 00441094 22
  23. 23.  Circular No. 165 dated 20.11.2012 Notification No. 48/2012-ST dated 3.2.2012 No change in law Only for statistical analysis New code created for penalty Registration obtained under the positive list approach continue to be valid Registration under all taxable services to be amended online under specific head of services
  24. 24.  No specific time limit to amend the registration specified To be done with in 30 days For reverse charge, registration should be obtained as service receiver under respective category. Accounting codes for residual entry  Service Tax 00441480  Interest 00441481  Penalty 00441485
  25. 25.  Change in valuation rules in relation to works contracts and outdoor catering / supply of food. Provision introduced for date of determination of value of service, tax rate and rate of exchange. Payment of Service Tax on receipt basis for all service providers being individuals / firms / LLPs, if aggregate value of taxable services in previous year does not exceed Rs. 50 lakh. Criteria for Rs 10 lakh threshold exemption changed. Time limit for appeal by assessees to Commissioner (Appeals) reduced from 3 months to 2 months Revision Application Authority and Settlement Commission provisions made applicable to service tax. Special Audit of Service tax assesses by CAs /CWAs . 25
  26. 26.  N. No. 47/2012-ST dated 28.09.2012 – for April to June 2012, quarterly return prescribed. Order No. 3/2012 - last date of return was extended upto 25.11.2012 Modified ST-3 issued and available at - More or less, it is same as previous ST-3 return. Only the year and return period column is pre-filled and constant Return format and time for next quarter/ period to be notified 26
  27. 27. Exports [Rule 6(A)]  Service provider should be in India  Service receiver should be outside India  Both should not be mere establishments  Service should not be in Negative list  Service should be provided outside India  Payment should be in convertible currency Taxability as per POP Rules
  28. 28. ‘Service has been defined in clause (44) of the new section 65B and means – any activity for consideration carried out by a person for another and includes a declared service (66E) 28