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[Economic Survey] Ch10: Service Sector- service tax, negative list, FDI limits,

ICT, Tourism, Trade, R&D, Budget 2014 provisions

[Act 1] Services: theory and statistics
Service Tax: theory
Service tax is an Indirect tax of the Union.
Collected by CBEC-Central board of excise and customs.
Doesnt apply to Jammu and Kashmir.
Doesnt apply to person/company selling less than Rs.10 lakhs worth services in a
financial year.
Tax deduction at source (TDS) mechanism doesnt apply.
o Suppose, there was TDS system in service tax, then if hotel bill was 10
0 rupees, then customer would have to pay only Rs.87.64 to hotel owner and remai
ning 12.36 directly to Government as service tax payment.
o And in that case, we wouldnt call it indirect tax either but direct tax.
o There was a similar hotel receipt tax (a direct tax) in past, but it was
Service tax: Constitutional angle
Originally, Constitution did not provide for service tax. Therefore Government had
to amend the Constitution
88th Constitutional amendment, 2003.
Art. 268A Empowers union Government to levy services tax.
7th Sch. Entry 92C Tax on services, falls under Union list.
For income tax, there is income tax act; for excise duty there is excise duty ac
t; for custom duty there is custom duty act.
BUT there is no separate service tax act for collection of service tax.
Service tax levied under provisions of ch.5 of the finance Act.*
*Recall that along with budget (Annual financial statement art.112), Government
puts two bills:
o APPROPRIATION BILL: to spend money from consolidated fund of India
o FINANCE BILL: to collect taxes
Services kept out?
Government collects service tax using Comprehensive approach i.e. service tax appl
icable on all services except those given in kept out.
Two types of services kept out of tax ambit
Negative List Exempted
These services are specifically listed in finance act. (sec.66D) these se
rvices are exempted (temporarily) by Government notification
Changing this list, requires parliamentary approval- because youll need to amend
the Finance Act itself. Doesnt require parliamentary approval. Government can cha
nge it any time.
17 services in negative list (given below) some examples-veterinary healthc
are, legal service, cord blood bank, sports-recreation, hotel rooms below Rs. 1
000, non-AC restaurants, general insurance and so on.
Service tax: negative list (17 services)
Service tax will not apply to following services:
1. services provided by Government /local authority
a. Post card, inland letter, money order etc. kept out of service tax. but
premium services like speedpost, express parcel=service tax applies.
b. No service tax on sovereign functions- like granting spectrum license, del
ivering justice etc.
2. RBIs services (Except when RBI acts as bankers bank)
3. foreign diplomatic mission in India
4. agriculture related services for example
a. Renting agro. machineries
b. supplying farm labour
c. Grading, sorting, processing, packaging as long as essential characteris
tics not changed.
d. research and extension services
e. pisciculture (fish), sericulture (silk), plantations