Apartments, hotels, turn cheaper in negative list

Though services of astrologers, private tutors or marriage brokers now cost more under the new approach to taxation of services, there’s good news in store, too. Hotel accommodation, apartments and visits to restaurants may turn cheaper.

The negative list for taxation of services, which came into effect yesterday, allows some taxpayers to claim credit for tax paid on inputs used in providing a service. Earlier, input tax credit was not allowed in the case of abatement on a service. For example, on construction of an apartment of Rs 1 crore, a builder was given 75 per cent abatement and the service tax was levied only on Rs 25 lakh. Now, if the builder claims tax credit on the inputs used, roughly about 50 per cent, he would have to pay tax only on Rs 12.5 lakh.

 

A finance ministry official said taxpayers benefiting under the new approach were expected to pass on the benefit to customers. He added life insurance companies had been allowed tax credit of 20 per cent. This was denied earlier, as policies comprised both insurance and investment components.

RELIEF IN SERVICE TAX
Service	Abatement* %)
Services in relation to financial leasing including hire purchase	10
Bundled service like supply of food at a hotel together with renting of premises	70
Transport of passengers by air	40
Renting of hotels, inns, guest houses or clubs	60
Renting of any motor vehicle designed to carry passengers	40
Transport of goods in a vessel	50
Services by a tour operator in relation to a package tour	25
Construction of a complex, building, civil structure	25
*Abatement is reduction in taxable amount

He said service tax collections might see a marginal increase over the coming months, owing to the introduction of the negative list.

About 18 services, taxed until June 30, would now be taken out of the service tax ambit. These include transportation of goods (net weight less than 15 tonnes) by inland waterways and coastal vessels, cinematography, vocational education under the National Skill Development Corporation, hiring buses for state transport corporations, services provided by advocates to individuals, construction of original works pertaining to metro or monorail, construction, repair or maintenance of pipelines or plants for water supply and water or sewerage treatment/disposal.

The ministry clarified services received by individuals from abroad, including remittances in foreign currency, were not liable to service tax. When foreign exchange transactions take place in India, service tax would be levied on the commission charged for converting one currency into another, not on the entire amount.

Under the new approach to tax services, the negative list accounts for 17 services, while 39 have been exempted from the levy of tax. The addition or removal of a service from the negative list would need parliamentary approval, while the exemption list can be changed through an executive order.