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New Service Tax Regime - A Fresh Approach
Effective from 1 July 2012, the Central Government of India replaced the positive list based taxation scheme by negative list based taxation scheme. Under the new regime, all activities carried out by one person for another in return for a consideration (including monetary and non-monetary consideration), other than those falling under the specific exclusions or exemption are brought under the ambit of service tax. Taxand India explores this new regime in detail.
Even the activities such as refraining or forbearing to do an act or tolerating an act or a situation or doing or agreeing to do an act would now be subject to service tax in India. Further, new interpretation rules have been introduced for determining taxability of services containing elements of two or more services under the concept of bundled services.
The new regime introduces a fresh concept of Place of Provision of Service in the form of Rules similar to European VAT laws for determining taxability of services exported from or imported into India, which substitute the erstwhile Export of Services Rules, 2005 and Taxation of Services (provided from outside India and received in India) Rules, 2006.
Further, the earlier exemption notifications and abatements have been rescinded and have been replaced with new exemptions and abatements.
Apart from the above, significant amendments have been made under the Valuation Rules and CENVAT Credit Rules to promulgate the new law. Also on many new services, the service recipient has been made liable to pay service tax on a reverse charge basis.
In light of the above, a concall on 'New Service Tax Regime' was hosted by Taxand India to help our members in understanding the new laws and the impact of the same on their business in India.
Given the plethora of changes made under the Indian service tax laws; as a way forward Taxand suggests that the under mentioned approach be adopted by the members in order to ensure compliance with the new service tax laws in India:
- Re-visit the erstwhile positions adopted including taxability, exemptions, abatements, valuation, etc
- Specially, review taxability of import of services & export of services in terms of the Place of Provision of Service Rules
- Identify all types of composite transactions to determine levy of service tax under the new concept of bundled services
- Review situation of reverse charge applicability and make changes in ERP in order to capture such transactions
- Review of contracts