A new service tax regime, based on a negative list of exempted services, will come into effect on Sunday.
With this, all services — except the 38 activities put on the negative list — will come under the tax at the increased rate of 12 per cent, as announced in the Union budget.
As of now, service tax is being levied on 119 services based on a positive list. The switch-over to a negative list-based approach is aimed at aligning the indirect taxation system to the proposed Goods and Services Tax (GST) regime, which is sought to be introduced to unify the levies of the Centre and the States into a composite system.
With the services sector now accounting for 60 per cent of the gross domestic product, the Finance Ministry has set a target of Rs.1.24 lakh crore for service tax collection during 2012-13. This is significantly higher than the Rs.97,000 crore mopped up during the previous fiscal.
As per the negative list-based approach, services such as metered taxis, auto-rickshaws, betting, gambling, lottery, entry to amusement parks, transport of goods or passengers and transmission and distribution of electricity by distribution companies will not come under the service tax net.
Other important services exempted from the levy are solemn activities such as funeral, burial, mutate services and transport of deceased. In the education sector, school and university courses, as also approved vocational studies, have been exempted.
Likewise, auxiliary educational services and renting of immovable property by educational institutions in respect of education will not be taxed. However, coaching classes and training institutions will be taxed.
Among the other services included in the negative list are those provided to government, local authorities or a government authority for repair and maintenance of an aircraft. Likewise, services provided by advocates to other advocates and business entities up to a turnover of Rs. 10 lakh in the preceding financial year will be exempt from the tax.
Services provided by way of public convenience, such as bathroom, washroom, urinals or toilets, are included in the negative list, just as services relating to work contracts for a scheme under the Jawaharlal Nehru National Rural Urban Renewal Mission or the Rajiv Awas Yojana.