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Four new services under tax net

NEW DELHI: Finance Minister P. Chidambaram sought to bring in four new services under the tax net to garner higher revenues while keeping the rates unchanged at 12 per cent for 2008-09.

The new services included for taxation are stock and commodity exchanges and clearing houses, asset management firms offering unit-linked insurance plan (ULIP) to bring them on a par with similar service providers for mutual funds and customised software to put them on a par with packaged software and other IT services. The fourth category is “the right to use goods, in cases where VAT in not payable.”

Rationalising the inclusion of the four services for taxation purposes while presenting the budget, Mr. Chidambaram said: “Fifty-five per cent of the GDP is contributed by the services sector, which is a growing sector that must contribute its legitimate share to the exchequer.”

Alongside, to provide relief to the small service providers, he proposed to enhance the threshold limit of tax exemption from the current level of Rs. 8 lakh to Rs 10 lakh.

“As a result, about 65,000 small service providers will go out of the tax net.”

The Minister went on to clarify that certain other categories of service providers such as money changers, persons running games of chance and tour operators using contract carriage vehicles were liable to pay service tax.

Accordingly, purchase or sale of foreign currency, including money changing by an authorised dealer or an authorised money changer under banking and other financial service would be under the service tax net.

The new services and changes are to be effective from a date to be notified after enactment of the Finance Bill 2008.

With the inclusion of these four new services for taxation purposes, the government has estimated a collection of Rs. 64,460 crore in 2008-09.

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