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Business Owners – you are going to pay extra if you use government service !!!(Expert Article)

Posted on: 17/Mar/2015 12:47:59 PM

Yes it was expected !!! The budget 2015 has more hidden inside than it meets the eye !!!


The Government of India was expected to deliver a reforms budget and it did !!!


1.  Introduction of GST Regime:


The Finance Minister Shri. Aruj Jaitley has given a commitment to bring out the Goods and Service Tax (GST) Regime by 1st April 2016. In this path, the first step was to shift to comprehensive taxation of all services, which was started in the year 2012. But, the then Government had correspondingly had exemptions for many services, which made the implementation of GST a difficult task.


2. Path set for GST Regime:

The fundamental premise of the GST regime is to eliminate exemptions to ensure there is smooth flow of GST credits from one person to another. So, as expected, this Government had already started withdrawing the exemptions commencing from the last budget.


3. Important Change in Service Tax – Government Services taxable: This Budget 2015 has a subtle amendment in relation to services provided by the Government.


 (a)  Existing Provision:

As per the existing provisions, Support Services by the Government to Business Entity is liable for service tax.

The meaning of “Support Services” is as follows:

·  Infrastructural, operational, Administrative, Logistic, marketing or any other support of any kind

·  It contains functions that the entities carry out themselves but may obtain as services by outsourcing from others

·   It shall include advertisement and Promotion, Construction or Works contract, renting of Immovable property, Security, Testing and analysis.”


Old Provision: To put it in simple terms, service tax must be levied on all services provided by the Government where private parties are also competitors. Service tax shall not be levied on those services where Government is the only person involved.


(b)  Examples under Old Provivisions:

Taxable Services

Non Taxable Services

(a) Government may rent out its properties on rental to businesses. It is example of support service.

(b) Police protection provided to a business event at the specific request of the business

(c) Advertisements in trains

(a) If the Government collects fees for filing Company Law returns, it is not liable for service tax, because the Government is the only one who can collect such fees.

(b) If the Government conducts a tender for giving certain projects to business entities, the tender fees is not liable for service tax as the Government is the only one who can collect fees for such tender.



(c)   New Provision (to be effective from date of passing of the Finance Bill 2015)

· As per the changes, any service provided by the Government to the Business entities, shall be liable for service tax.

·  This will have a huge impact on all the businesses, as such service tax has to be paid by the businesses directly to the service tax department out of their pocket.

· Because of this, the following services could come into service tax impact:

1.  Tender Fees

2. Licence Feeses paid to government for operating in a particular industry Eg. Liquor, 2G / 3G licences

3. Fees paid under the Various Laws


It should be noted that the Government will not collect service tax along with the above fees. Rather, the businesses must pay service tax on their own to the Service tax department.

We can expect a clarification from the Central Government on this new taxation as this could increase the costs of operations of small and medium businesses. But as of now, the business enterprises must consider this additional cost, whenever they avail services from government.


CA T.R.Srinivasan
Shree Guru Kripa’s Institute of Management
Ph.No.: 97899 76079
Mail ID: trs.connects@gmail.com

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