What You Need To Know About The Recent Changes To Service Tax Laws In India?

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India’s Department of Revenue has finalized the dates for the implementation of the Negative List for service tax as well as the phase-out of the current service tax regime. Although the proposed changes are in draft format, once the new regime is in place, all companies will have less than a month's time to comply with the changes. Except for exempted services or services in the Negative List, all other service providers will be liable to pay tax from July 1, 2012.

Termination of existing service tax system

A government notification declared that the current service tax regime will be applicable until June 30, 2012 and service tax provisions for the following will be phased out:

• Definitions including that of taxable service categories
• Rules of classification of taxable service categories
• Charge of Service tax on taxable service categories
• Charge of Service tax on services received from outside India

Implementation of the Negative List

Replacing the current tax regime, following provisions will take effect from ...
... July 1, 2012:

• Definitions of important terms including definition of service
• New charging section
• Determination of place of provision of service
• Services listed under Negative List
• Declared services and
• Principles of interpretation (Bundled services)

The Negative List also specifies that partial reverse charge will be applicable on services like manpower, works contract service, and hiring of motor vehicle (non - abated value) effective from 1 July 2012. Changes announced in the Union Budget 2012 relative to exemptions, abatements, partial reverse charge and exemption from R&D cess will come into effect from July 1, 2012.

Changes to valuation regime

Following are the proposed amendments to come into effect from July 1, 2012

• With an amendment to the Determination of Value Rules, a mechanism has been provided for the determination of good value in a works contract where the value may or may not be available.
• Service portion will be determined by subtracting the value of property transferred from the gross amount charged in a works contract.
• During the transfer of property, the value of the property won’t include Value Added Tax (VAT) or Central Sales Tax (CST).
• In a works contract, the service portion of original works will be charged at 40% for execution and 70% for maintenance/ repair, and for contracts involving other completion activities, 60% will be charged on the total amount.
• The service portion in the meals served in a restaurant is set at 40% and 60% for outdoor catering.

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