Union Budget 2016 Service Tax Changes

1. 2016 UNION BUDGET
ANALYSIS ON
CHANGES RELATING TO
SERVICE TAX
R. Venkatakrishnan & Associates

2. Finance Act, 1994
RVK & Associates Location – Chennai, Bangalore, Hyderabad, Salem & Devanahalli

3. Krishi Kalyan Cess
RVK & Associates
Proposed Provisions
 An enabling provision is being made to levy Krishi Kalyan Cess on
all taxable services
 Objective is to finance and promote initiatives to improve
agriculture
 Proposed Tax Rate is 0.5%
 All Provisions of refunds, exemptions from tax, interest and
imposition of penalty will also be applicable to this Cess
 CENVAT credit of this cess will be available for payment of this cess
Effective from1.6.2016

4. Definition of Service
RVK & Associates
Statutory Reference – Section 65B(44)
Proposed Amendment:
Explanation 2 in section 65B (44) of the Finance Act, 1994 is being
amended so as to clarify that any activity carried out by a lottery
distributor or selling agent of the State Government is leviable to
Service Tax.
Effective from – After the finance bill 2016 is enacted

5. Interest on Late Payment of ST
RVK & Associates
Statutory Reference – Section 75
Existing Provisions: Interest for delay in Payment of Service Tax which ranges
between 18% to 30% depending delay in days.
New Provisions:
 Interest rates on delayed payment across all indirect taxes are being rationalized
 Uniform rate at 15% where service tax is not collected
 In case where Service Tax is collected but not deposited to the exchequer, interest
rate will be 24%.
 Note: If the value of taxable services rendered in the preceding year is less than Rs.
60 Lakh, then the rate of interest will reduce by 3%.
Notification – 13/2015 & 14/2015
Effective date – Date to be notified

6. Timeline for Issue of Show
Cause Notice (SCN)
RVK & Associates
Statutory Reference: Section 73
 Section 73 of the Finance Act, 1994 is being amended so as to
increase the time line for issue of Show Cause Notice for short
levy/non levy/short payment/non-payment/erroneous refund of
Service Tax.
 The Existing Time limit of 18 months is extended to 30 months

7. Miscellaneous Provisions
RVK & Associates
Statutory Reference: Section 89, 90 & 91
 Ceiling limit for Offences and Penalties committed is increased from
50L to 2cr
 Monetary limit for launching prosecution under Section 90 & 91is
increased from Rs. 1 cr to Rs. 2 cr of Service Tax evasion i.e., tax is
collected the tax but not deposited it to the exchequer

8. Service Tax Rules, 1994
RVK & Associates Location – Chennai, Bangalore, Hyderabad, Salem & Devanahalli

9. Quarterly Payment of Service
Tax
RVK & Associates
Statutory Reference: Rule 6
Existing Provision:
 As per Rule 6 of Service Tax Rules, 2004, periodicity for payment of
service tax for Individuals and Partnership firms is on quarterly
basis.
New Provision:
 In addition to Individuals and Partnership firms, even for ‘One
Person Company’ (OPC) and HUF periodicity for payment of
Service tax will be on Quarterly basis.
 Notification No. – 19/2016
 Effective date – 1.4.16

10. Payment of Service Tax on
Receipt Basis for OPC
RVK & Associates
Statutory Ref: Rule 6
Existing Provision:
 In case of Individuals and Partnership firms whose aggregate value of
taxable services is less than 50L rupees in the previous financial year
then the service provider has the option to pay tax on receipt basis.
New Provision:
 In addition to Individuals and partnership firms, One person company
(OPC) can avail the benefit of paying tax on receipt basis.
 Notification No. – 19/2016
 Effective date – 1.4.16

11. Life Insurance Premium –
Single Premium annuity
Existing Provision:
 An insurer carrying on life insurance business shall have the option to pay tax
either
 On the gross premium charged from a policy holder reduced by the amount
allocated for investment or savings on intimation to the policy holder
 Or at 3.5% of the premium charged in the first year and 1.75% of the
premium charged in the subsequent years.
New Provision:
 The rate of Service Tax on single premium annuity (insurance) policies is being
reduced from 3.5% to 1.4% of the premium, in cases where the amount
allocated for investment, or savings on behalf of policy holder is not intimated to
the policy holder at the time of providing of service
 Notification No. 19/2016
 Effective Date – 1.4.16 RVK & Associates

12. Annual Return
RVK & Associates
New Provision:
 In addition to filing half yearly service tax returns under Rule 7, assessee will also be
required to file an annual return
 Timeline to file the return is 30th day of November of the succeeding financial year to
which it pertains
 The Central Government will notify class of assessee’s who need not file the annual
return
 Form and manner of the return will be specified in due course of time.
 The Annual Return filed can be revised within a period of one month from the date of
submission of the said annual return
 In case of delay in filing the annual return, penalty at Rs. 100 per day for the period
of delay in filing of such return, subject to a maximum of Rs. 20,000 will be required
to be paid.
 Notification – 19/2016
 Effective date - 1.4.2016.

13. Declared Service
RVK & Associates Location – Chennai, Bangalore, Hyderabad, Salem & Devanahalli

14. Declared Service
RVK & Associates
Statutory Ref: Section 66E
 Under transfer of goods by way of hiring, leasing, licensing without
transfer of right to use such goods, it is clarified that Assignment of
the right by the Government to use the radio-frequency spectrum
and subsequent transfers thereof is being declared as a service.
 This clarification is provided as to make it clear that assignment of
right to use the spectrum is a service leviable to Service Tax and not
sale of intangible goods.

15. Negative List
RVK & Associates Location – Chennai, Bangalore, Hyderabad, Salem & Devanahalli

16. Transport of Passenger by Stage
Carriage
RVK & Associates
Existing Provision:
 Services of transportation of passengers, with or without accompanied belongings, by a
stage carriage’ was Exempted.
New Provision:
 The above services, if rendered by a Air Conditioned Stage Carriage will be taxable from
1st June, 2016
 As per Motor Vehicles Act, 1988
“Stage carriage" means a motor vehicle constructed or adapted to carry more than
six passengers excluding the driver for hire or reward at separate fares paid by or for
individual passengers, either for the whole journey or for stages of the journey;
 Similar to Contract Carriage, abatement of 60% can be availed. However, credit of inputs,
input services and capital goods will not be allowed.
 Effective from – After the finance bill 2016 is enacted

17. Education Service
RVK & Associates
 The Negative List entry covering ‘educational services by way of
(a) pre-school education and education up to higher and secondary school or
equivalent,
(b) education as a part of a curriculum for obtaining a qualification recognized
by any law for the time being in force and
(c) education as a part of an approved vocational education course
Is omitted.
 However, the exemption shall continue by way of exemption notification No. 25/2012
– ST (Mega Exemption Notification)
 Although these services may not be taxable now as it is included under Mega
Exemption Notification. However, the Government can bring any of the above service
tax under the purview of service tax by amending Notification No. 25
 Effective from – After the finance bill 2016 is enacted

18. Mega Exemption Notification
RVK & Associates Location – Chennai, Bangalore, Hyderabad, Salem & Devanahalli

19. Senior Advocates & Arbitrary
Tribunal
RVK & Associates
Existing Provision:
 There is no bifurcation between services rendered by a senior advocate and other
advocates
 Further, services provided by a person represented on an arbitral tribunal to an
arbitral tribunal is also exempted.
New Provision:
 Services provided by a senior advocate to an advocate or partnership firm of
advocates, and a person represented on an arbitral tribunal to an arbitral tribunal
will be taxable.
 Senior Advocate - An advocate may, with his consent, be designated as senior
advocate if the Supreme Court or a High Court is of opinion that by virtue of his
ability standing at the Bar or special knowledge or experience in law he is
deserving of such distinction (Section 16 of Advocates Act, 1961)
 Notification No. – 9/2016
 Effective date – 1.4.16

20. Metro & Mono Rail
RVK & Associates
Existing Provision:
 Sl. 14. provides for exemption of service tax on construction,
erection, commissioning or installation of original works pertaining
to monorail or metro
New Provision:
 Service tax will be applicable on all Contracts pertaining to
construction, erection, commissioning or installation of original
works pertaining to monorail or metro entered into on or after 1st
March 2016.
 Notification No. – 9/2016
 Effective date – 1.3.16

21. Housing Services
RVK & Associates
New Provision:
Sub-clause (ca) is added to Sl. No. 14 which provides exemption
for
 (ca) low cost houses up to a carpet area of 60 square metres per
house in a housing project approved by the competent authority
under:
(i) the “Affordable Housing in Partnership” component of the
Housing for all (Urban) Mission/Pradhan Mantri Awas Yojana;
(ii)any housing scheme of a State Government.”.
 Notification No. – 9/2016
 Effective date – 1.3.16

22. Construction Services Rendered to
Govt.
RVK & Associates
New Provision:
Sl. No. 12A is inserted which restored services that was removed via Finance Budget, 2015.
 “12A. Services provided to the Government, a local authority or a governmental authority by way
of construction, erection, commissioning, installation, completion, fitting out, repair,
maintenance, renovation, or alteration of -
(a) a civil structure or any other original works meant predominantly for use other
than for commerce, industry, or any other business or profession;
(b) a structure meant predominantly for use as (i) an educational, (ii) a clinical, or(iii) an
art or cultural establishment; or
(c) a residential complex predominantly meant for self -use or the use of their employees
or other persons specified in the Explanation 1 to clause (44) of section 65 B of the said
Act;
under a contract which had been entered into prior to the 1st March, 2015 and on which appropriate
stamp duty, where applicable, had been paid prior to such date provided that nothing contained in this
entry shall apply on or after the 1St April, 2020
Notification No. – 9/2016
Effective date – 1.3.16

23. Construction of Airports & Ports
RVK & Associates
New Provision:
 Exemption from Service Tax on services by way of construction,
erection, etc. of original works pertaining to an airport, port was
withdrawn with effect from 1.4.2015.
 The same is being restored for the services provided under a
contract which had been entered into prior to 01.03.2015 and on
which appropriate stamp duty
 The exemption is being restored till 31.03.2020.
 Notification No. – 9/2016
 Effective date – 1.3.16

24. Transport of Passengers by
ropeway, cable car etc.
RVK & Associates
Existing Provision:
 Sl. No. 23 provides for exemption on the services of transport of
passengers, with or without accompanied belongings, by ropeway,
cable car or aerial tramway
New Provision:
 These services will now be taxable from 1st April, 2016.
 Notification No. – 9/2016
 Effective date – 1.4.16

25. Artist
RVK & Associates
Existing Provision:
Services by an artist by way of a performance in folk or classical art
forms of (i) music, or (ii) dance, or (iii) theatre, if the consideration
charged for such performance is not more than 1 lakh rupees.
New Provision:
“The threshold exemption of Rs. 1 lakh is being enhanced to Rs 1.5
lakh charged per event.
Notification No. – 9/2016
Effective date – 1.4.16

26. Indian Institute of Management
(IIM)
RVK & Associates
New Exemption :
 Services provided by the Indian Institutes of Management (IIM), as
per the guidelines of the Central Government, to their students, by
way of the following educational programmes, except Executive
Development Programme,
 2 yr full time residential Post Graduate Programmes in
Management for the Post Graduate Diploma in Management, to
which admissions are made on the basis of Common Admission
Test (CAT), conducted by Indian Institute of Management;
 fellow programme in Management;
 5year integrated programme in Management.”;
Notification No. – 9/2016
Effective date – 1.4.16

27. List of Services Exempted
RVK & Associates
 Services by way of transportation of goods by an aircraft from a
place outside India up to the customs station of clearance in India
 Services provided by Employees ‟Provident Fund Organisation
(EPFO) to persons governed under the Employees‟ Provident
Funds and Miscellaneous Provisions Act, 1952
 Services provided by Insurance Regulatory and Development
Authority of India (IRDA) to insurers under the Insurance Regulatory
and Development Authority of India Act, 1999
 Services provided by Securities and Exchange Board of India
(SEBI) set up under he Securities and

28. List of Services Exempted …
cont’d
RVK & Associates
 Services provided by Securities and Exchange Board of India (SEBI)
set up under he Securities and Exchange Board of India Act, 1992(15
of 1992) by way of protecting the interests of investors in securities and
to promote the development of, and to regulate, the securities market
 Services provided by National Centre for Cold Chain Development
under Ministry of Agriculture, Cooperation and Farmer’s Welfare by
way of cold chain knowledge dissemination
 Services of assessing bodies empanelled centrally by Directorate
General of Training, Ministry of Skill Development & Entrepreneurship
are being exempted from Service Tax
With effect from 1.4.2016

29. Abatement
RVK & Associates Location – Chennai, Bangalore, Hyderabad, Salem & Devanahalli

30. Rail Transport - Goods
RVK & Associates
Existing Provision:
 Currently, for transport of goods by rail abatement of 70% is provided.
 For availing the abatement, CENVAT Credit on inputs, capital goods and input
services is not allowed
New Provisions:
 Under the amended provisions,
 For transport of goods by rail in containers by rail (other than Indian Railways)
abatement is 60%.
 For transport of goods by rail other than the above abatement is 70%
 Note: CENVAT on input services is allowed
 Notification No. – 8/2016
 Effective date – 1.4.16

31. Rail Transport - Passenger
RVK & Associates
Existing Provision:
 Currently, for transport of passengers with or without accompanied
belongings by rails abatement of 70% is provided.
 For availing the abatement, CENVAT Credit on inputs, capital goods
and input services is not allowed
New Provisions:
 Under the amended provisions, CENVAT Credit on input services is
allowed.
Notification No. – 8/2016
Effective date – 1.4.16

32. GTA Service for Household
RVK & Associates
Existing Provision:
 In respect service of Goods transport agency, abatement rate is
70%.
New Provisions:
 The amended provisions provides abatement rate of 70% in case of
goods transport agency used for goods other than household goods
 In case of household goods, the abatement rate is 60%
Notification No. – 8/2016
Effective date – 1.4.16

33. Services provided by a Foreman of
Chit fund
New Provision:
 Services provided by a foreman of chit fund in relation to chit will be
eligible for abatement of 70%.
 However, CENVAT credit on inputs, capital goods and input
services, used for providing the taxable service should have not
been taken under the provisions of the CENVAT Credit Rules, 2004
 Notification No. – 8/2016
 Effective from – 1.4.2016
RVK Associates Location – Chennai, Bangalore, Hyderabad, Salem &
Devanahalli

34. Transport of Goods in a Vessel
Existing Provision:
 For transport of goods in a vessel, abatement of 70% is provided.
 For availing the abatement, CENVAT Credit on inputs, capital goods
and input services is not allowed
New Provisions:
 Under the amended provisions, CENVAT Credit on input services is
allowed.
Notification No. – 8/2016
Effective date – 1.4.16
RVK Associates Location – Chennai, Bangalore, Hyderabad, Salem &
Devanahalli

35. Construction Service
RVK & Associates
Existing Provision:
In respect of services by way of construction of residential complex,
building, civil structure, or a part thereof
 If the carpet area of the unit is less than 2000 sq ft and the if the
amount charged is less than Rs. 1cr then abatement rate is 75%.
 If any of the conditions were not fulfilled then the abatement rate
will be 70%.
New Provisions:
 The abatement rate is now rationalized at 70%
Notification No. – 8/2016
Effective date – 1.4.16

36. Tour Operator Service
RVK & Associates
Existing Provision:
 Currently, services of tour operator in relation to packaged tour was given
abatement of 75%
 Further, if the tour operator provides services solely of arranging or booking
accommodation then the abatement rate is 90%
 In other cases it was 60%.
New Provisions:
 The amended provisions have rationalized the abatement wherein
 If the tour operator provides services solely of arranging or booking
accommodation then the abatement rate is 90
 In other cases it is 70%.
Notification No. – 8/2016
Effective date – 1.4.16

37. Rent a Cab Service
RVK & Associates
 In the Finance Budget, 2016 an explanation is added in the
notification wherein for the purpose of availing abatement under
Rent-a-cab service, amount charged by the service provider
shall be the sum total of the amount charged for the rent a cab
service including the fair market value of all goods (including
fuel)
 Notification No. – 8/2016
 Effective date – 1.4.16

38. CENVAT Credit Rules, 2004
RVK & Associates Location – Chennai, Bangalore, Hyderabad, Salem & Devanahalli

39. Time Limit to File the Refund
Claim
RVK & Associates
Statutory Provisions: Rule 5
 Refund application should be filed within one year from the relevant date as
prescribed in Section 11B of the Central Excise Act, 1944
 Relevant date as per Section 11B for exporter of service is one year from the
date of payment to the vendor.
New Provision:
 For export of services, time limit to file service tax refund claim is 1 year from
the date of :
(a) receipt of payment, where provision of service has been completed prior
to receipt of such payment; or
(b) issue of invoice, where payment, for the service has been received in
advance prior to the date of issue of the invoice.
Notification – 14/2015 – CE(NT)
With Effect from 1.3.2016

40. CENVAT Credit for Banks
RVK Associates
Statutory Ref: Rule 6(3B)
Existing Provision:
 Sub-rule (3B) provides that in case of banking company and financial
institution including non-banking financial company, providing Banking
and other Financial Services, they shall pay for every month an amount
equal to 50% of the CENVAT credit availed on inputs and input
services in that month
New Provision:
 The above rule is amended to allow banks and other financial
institutions to reverse credit in respect of exempted services on actual
basis in addition to the option of 50% reversal
Notification – 13/2016 CE (NT)
Effective date -1.4.2016

41. Miscellaneous
RVK & Associates Location – Chennai, Bangalore, Hyderabad, Salem & Devanahalli

42. Miscellaneous Provisions
RVK & Associates
 Service tax on the services of Information Technology Software on
media bearing RSP is being exempted from Service Tax with effect
from 1st March, 2016 provided Central Excise duty is paid on RSP
in accordance with Section 4A of the Central Excise Act.
 Mutual exclusiveness of levy of excise duty and Service Tax on
Information Technology Software in respect of software recorded on
media “NOT FOR RETAIL SALE” is being ensured by exempting
from excise duty only that portion of the transaction value on which
Service Tax is paid.
 Services provided by approved biotechnology incubators to
incubatees are being exempted from Service Tax with effect from
1st April, 2016

43. Miscellaneous Provisions…
cont’d
RVK & Associates
 For cases pending before Commissioner (Appeals), Indirect tax
Dispute Resolution Scheme, 2016 Scheme is being introduced.
 Assessee can resolve the dispute by paying tax, interest and
penalty equivalent to 25% of duty after which the pending
proceedings against the assessee will be closed and he will also
get immunity from prosecution. However, this scheme will not apply
in cases:
a) where prosecution has already been launched
b) involving narcotics & psychotropic substances
c) involving detention under Conservation of Foreign Exchange
and Prevention of Smuggling Activities Act.

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45. Disclaimer
This information contained herein is of limited analysis of the topics covered.
Further, many of the contents of this document are subject to approval of
Finance Bill by the Parliament and its assent by the President of India.
This document is prepared only as guiding tool reflecting highlights of Union
Budget 2015. While every care has been taken in the preparation of this
document, it may contain inadvertent errors for which we shall not be held
responsible. No one should act on such information without appropriate
professional advice. We accept no responsibility for loss arising from any
action taken or not taken by anyone using this material and information.
RVK Associates Location – Chennai, Bangalore, Hyderabad, Salem &
Devanahalli