Budget 2007 - Service Tax

• Service tax rate to continue at 12%.

• Service tax imposed on the following services, to be effective from a date to be notified after the enactment of the Finance Bill, 2007:-

– telecommunication services provided to any person by a telegraph authority

– services outsourced for mining of mineral, oil or gas

– renting of immovable property for use in the course or furtherance of business or commerce

– service provided in relation to the execution of a works contract

– development and supply of content for use in telecom services, advertising agency services and on-line information and database access or retrieval services

– asset management services provided by any person

– design services

• Scope of certain existing services being extended/ amended, changes to be effective from a date to be notified after the enactment of the Finance Bill, 2007.

• The benefit of exemption from service tax would be available on exports of services, only if the following conditions are met:-

– the taxable service is provided from India and is used outside India

– payment for such service provided outside India is received by the service provider in convertible foreign exchange

• Following exemptions have been provided:-

– services provided by Resident Welfare Associations to their members contributing upto Rs.3000/- per month (effective March 1, 2007)

– clinical testing of new drugs including vaccines and herbal remedies on human participants (effective March 1, 2007)

– services provided by a Technology Business Incubator (TBI) or Science and Technology Entrepreneurship Park (STEP) recognized by the National Science and Technology Entrepreneurship Board of the Department of Science and Technology (effective April 1, 2007)

– services provided by an entrepreneur (incubatee) located within the premises of TBI or STEP, on the condition that the aggregate turnover does not exceeds Rs.50 lakhs per annum. Exemption available for three years (effective April 1, 2007)

– services provided in relation to delivery of content of cinema in digital form after encryption, electronically (effective March 1, 2007)

• Threshold limit for small service providers increased to Rs. 8 lakhs per annum w.e.f. March 1, 2007. Consequently, the limit for obtaining service tax registration has also been increased to Rs. 7 lakh.

• The Service Tax Rules, 1994, are being amended to:-

–) provide self-adjustment of excess service tax paid, subject to specified conditions

– allow rectification of mistakes for and filing revised returns within 60 days from the date of submission of original return, subject to specified conditions

– enable submission of self-attested copy of the original registration certificate instead of original registration certificate while intimating any changes in the details given in the original registration certificate

– restrict the payment of service tax under reverse charge mechanism in relation to sponsorship service where the recipient of service is located in India

The above changes [except (iv) which will come into effect from 1st April, 2007] will come into effect from 1st March, 2007.