Highlights of Union Budget 2014

Service Tax

Changes applicable with immediate effect i.e. from 11th July, 2014 onwards

Amendments related to Mega Exemption Notification 

  • Service Tax made applicable on Air-conditioned Contract Carriages (benefit of abatement is allowed and service tax is payable on 40% of the value of service);
  • Service Tax made applicable on Clinical Research Organization;
  • Service Tax made applicable on other services such as consultancy, designing, etc. in relation to any activity in relation to any function ordinarily entrusted to a municipality in relation to water supply, public health, sanitation conservancy, solid waste management or slum improvement and up-gradation to Government, a local authority or a governmental authority;
  • Exemption on services of treatment or disposal of bio-medical waste to a clinical establishment;
  • Exemption on Services received by educational institutions made more clarificatory by introducing exhaustive list which is as follows:
  • transportation of students, faculty and staff of educational institution,
  • Catering services including any mid-day meal scheme sponsored by government,
  • Security or cleaning or house-keeping services in such educational institution,
  • Services relating to admission to such institution or conduct of examination.
  • Exemption on Services provided by an educational institution to its students, faculty and staff for eg. Transportation facility, Air conditioned Canteen, Health Services etc. provided to students, faculty and staff;
  • No Service Tax on Dharamshala, ashrams etc.
  • No Service Tax on Indian tour operators in cases where they organize tours for a foreign tourist wholly outside India;
  • Services by way of loading, unloading, packing, storage or warehousing, transport by vessel, rail or road (GTA), of organic manure, cotton, ginned or baled, made exempted;
  • Services by way of transport by vessel, rail of organic manure made exempted.

Amendments related to Reverse Charge Mechanism:

  • Services provided by Directors to Body corporates brought under reverse charge
    • Services provided by recovery agents to Banks, Financial Institution and NBFC brought under reverse charge
    • If Rent a cab Service provider does not claim the benefit of abatement scheme, service provider and service receiver both shall pay 50% of service tax each;
    • In relation to GTA Service the condition for availing abatement in case of GTA service is being amended to clarify that the condition for non- availment of credit is required to be satisfied by the service providers only. Service recipient will not be required to establish satisfaction of this condition by the service provider.                                 

Amendments related to SEZ

  • Service provided by sub-contractor to contractor who is further providing services (except Works Contract Service) to SEZ unit or the developer, benefit of exemption shall not be allowed to the sub-contractor;
  • Now service tax shall not be charged by the service provider if the services are provided to SEZ unit or developer on the basis of form A-1 but if form A-2 is not received within 3 months, service tax shall be paid by service provider;
  • Provisions with regard to claiming of exemption for SEZ units/ developers made more simplified by imposing time limits for issuance of Form A-2 etc;
  • There would be no requirement of furnishing service tax registration number of service provider in case of full reverse charge

Availability of CENVAT Credit:

  • In case of service tax paid under full reverse charge, the condition of payment of invoice value to the service provider for availing credit of input services is being withdrawn. However, there is no change in respect of partial reverse charge.
  • Re-credit of CENVAT credit reversed on account of non-receipt of export proceeds within the specified period or extended period, to be allowed, if export proceeds are received within one year from the period so specified or extended period. This can be done on the basis of documents evidencing receipt of export proceeds (Refer the newly inserted proviso to rule 6(8)).   

Changes applicable from 1st September, 2014

  • Manufacturer or a service provider shall take credit on inputs and input services within a period of six months from the date of issue of invoice, bill or challan. Currently, CENVAT Credit can be claimed at any time after receipt of invoice. 

Changes applicable from 1st October, 2014

  • Hike in interest rates from 18% to 24% & 30% in case of delay in payment beyond six months and one year respectively;
  • E- payment of service  tax made mandatory for every assessee;
  • Changes in Place of Provision of Services Rules, 2012 such as conditions for determination of place of provision of repair service carried out on temporarily imported goods is being omitted;
  • The definition of intermediary is being amended to include the intermediary of goods in its scope under Place of Provision of service rules;
  • Point of taxation in respect of reverse charge will be the payment date or the first day that occurs immediately after a period of three months from the date of invoice, whichever is earlier, if the invoice has been issued on or after 1st October, 2014;
  • Taxable portion in respect of transport of goods by vessel is being reduced from 50% to 40%;
  • Rule 2A of the Service Tax (Determination of Value) Rules, 2006, category “B” and “C” of works contracts are proposed to be merged into one single category, with percentage of service portion as 70%;
  • Now, CENVAT credit of input service of renting of motor cab is allowed to a Rent a Cab Service provider taking the benefit of abatement scheme of the following amount:
  • Full CENVAT credit of such input service received from a person who is paying service tax on forty percent of the value; or
  • Up to forty percent CENVAT credit of such input service received from a person who is paying service tax on full value.
  • Now, CENVAT credit of input service of a tour operator is allowed to a Tour operator service provider taking the benefit of abatement scheme.
  • Service consisting of hiring of Vessels (excluding yachts) and Aircraft is being excluded from rule 9(d). Accordingly, hiring of vessels, or aircraft, irrespective of whether short term or long term, will be covered by the general rule, that is, the place of location of the service receiver. Hiring of yachts would however continue to be covered by rule 9 (d). 

Changes applicable by way of notification after Finance bill gets assent from the president

  • Scope of taxability on sale of space for advertisement in broadcast media, namely radio or television is proposed to be extended to cover such sales on other segments like online and mobile advertising, advertisements in internet websites, out-of-home media, on film screen in theatres, bill boards, conveyances, buildings, cell phones, Automated Teller Machines, tickets, commercial publications, aerial advertising, etc.
  • Service tax is proposed to be levied on services provided by radio taxis or radio cabs, whether or not air-conditioned. The abatement presently available to rent-a-cab service would also be made available to radio taxi service, to bring them on par.

Changes applicable from the date of bill gets assent from president

  • Section 73 is being amended by way of insertion of new sub-section (4A) to prescribe time limit of six months and one year respectively for completion of adjudication for notice issued under sub-section (1) of section 73 and proviso to sub-section (1) and proviso to sub-section (4A).

Amendment in Appeal Provisions: 

a. Discretionary power of the Tribunal to refuse Appeal has been enhanced from

Rs. 50,000 to Rs. 2,00,000.

b. Erstwhile Section 35F has been substituted with a new Section. For details refer

to point no. 3 in customs section. 

c. Issue of Excisability/taxability: No appeal before High Court against the order of tribunal and appeal need to be filed directly before Supreme Court.

Advance Ruling: 

Scope of advance ruling has been expanded and now even the “resident private limited company” can apply.

Income Tax: 

  • Personal Income Tax Exemption Limit raised by Rs. 50,000. For Individuals below the age of 60 years or HUF- Rs. 2.5 lakh. For Senior Citizens- Rs. 3 Lakh
  • Investment limit under section 80C of the Income-tax Act raised from Rs. 1 lakh to Rs 1.5 lakh
  • Deduction limit on account of interest on loan in respect of self occupied house property raised from Rs. 1.5 lakh to Rs. 2 lakh. 
  • Conducive tax regime to Infrastructure Investment Trusts and Real Estate 
  • Investment Trusts to be set up in accordance with regulations of the Securities and Exchange Board of India.
  • Investment allowance at the rate of 15 percent to a manufacturing company that invests more than Rs. 25 crore in any year in new plant and machinery. The benefit to be available for three years i.e. for investments upto 31.03.2017. 
  • Investment linked deduction extended to two new sectors, namely, slurry pipelines for the transportation of iron ore, and semi-conductor wafer fabrication manufacturing units. 
  • 10 year tax holiday extended to the undertakings which begin generation, distribution and transmission of power by 31.03.2017. 
  • Income arising to foreign portfolio investors from transaction in securities to be treated as capital gains.
  • Concessional rate of 15 percent on foreign dividends without any sunset date to be continued. 
  • The eligible date of borrowing in foreign currency extended from 30.06.2015 to 30.06.2017 for a concessional tax rate of 5 percent on interest payments. Tax incentive extended to all types of bonds instead of only infrastructure bonds. 
  • Introduction of a “Roll Back” provision in the Advanced Pricing Agreement (APA) scheme so that an APA entered into for future transactions is also applicable to international transactions undertaken in previous four years in specified circumstances.
  • Introduction of range concept for determination of arm’s length price in transfer pricing regulations.
  • To remove tax arbitrage, rate of tax on long term capital gains increased from 10 percent to 20 percent on transfer of units of Debt Mutual Funds. Period of holding for claiming indexation increased from 1 to 3 years.
  • Income and dividend distribution tax to be levied on gross amount instead of amount paid net of taxes.
  • In case of non deduction of tax on payments, 30% of such payments will be disallowed instead of 100 percent. 
  • Government to review the DTC in its present shape and take a view in the whole
  • Tax deduction at source by Insurance companies from non-exempt payments made under life insurance policy.
  • Any expenditure incurred by an assessee on the activities relating to corporate social responsibility referred to in section 135 of the Companies Act, 2013 shall not be allowed as deduction under section 37

Advance Ruling: 

Scope of advance ruling has been expanded and now even the “resident private limited company” can apply.

Best regards,

Neeraj Bhagat & Co.