The Negative List: Service Tax Exemptions in a Nutshell

The Service Tax provisions in the budget detail out 17 areas on which you will not be charged a tax, and for absolutely everything else that involves a service, you will need to pay 12 % (plus cess). The seventeen areas are:

  1. 1. Services by the Government or local authorities: These will include such services like getting a passport, a driving license, paying municipal taxes, car registration fees, police fines and so on. What you pay for such services will not include any service tax.

    But of course, there are exceptions. Service tax will still be applicable on:
    - Speed or Express Post, and life insurance bought from a post office
    -
    airport services
    - government services provided to businesses. (Companies will pay it on the annual filing charges payable to the Registrar of Companies, for instance).

  2. 2. Services by the Reserve Bank of India. They won't tax the ones that print the money!

  1. 3. Foreign consulates and embassies in India. Hopefully this will mean to visa fees as well.

  1. 4. Agricultural services. This includes harvesting, planting, or warehousing services, renting of either vacant agricultural land or machinery,

  1. 5. Trading, and (see point 6)

  1. 6. Manufacturing of goods. For this and trading, service tax will not apply but there is already the excise duty, customs duty and VAT structure that will ensure they are still taxed.

  1. 7. Advertisements on hoardings or newspapers: The clause says that service tax will still apply on advertisements in TV or Radio, but for every other form of advertising.

  1. 8. Toll charges: No extra charges; imagine trying to pay Rs. 23.60 at a toll booth with twenty impatient cars behind you.

  1. 9. Gambling: Yes, you don't have service tax if you visit a casino, buy a lottery ticket or bet on a horse race. But if you win, the income tax is quite hefty, so all this clause does is that they don't tax you when you lose.

  1. 10. Entertainment events: What you pay to enter a concert or an amusement park will not be subject to service tax.

  1. 11. Electricity: If you're paying a local utility, no service tax will be applicable. But if you pay for power coming off a generator, you'll shell out 12% extra.

  1. 12. Education: No service tax for pre-school to high-school education. And not for any education to purse a qualification recognized by law. (I imagine this applies to courses such as a CA, MBBS, or any recognized degree) That also means you'll pay it for a course that gives you an unrecognized diploma, and for private tuitions.

  1. 13. Residential rent: For those of us that stay in rented premises, we don't have to pay service tax. Offices, factories and other users must, but that was true last year as well.
  1. 14. Certain financial transactions like giving money as a loan, buying a deposit, where interest is involved will not be chargeable to service tax. However, the interest actually received (or paid) will be subject to service tax. Also, given the way this clause is worded, if you give anyone money without any interest, service tax will apply. (At the very least, give or take some interest)

  1. 15. Public Transport: Exemption applies to all kinds of transportation, on water or land, included metered cabs. You will still pay service tax on First Class or any air-conditioned coach seats in a train. And you will pay it on packaged tours.

  1. 16. Goods transport: Except if you use a road transport agency or a courier service.

  1. 17. For the absolute end: This includes funeral, burial, crematorium, hearse or mortuary services. Taxes may kill you, but they won't touch your final rites.

In general, you need to have a "service" in order to be taxed.  For the most part, if a transaction already has a different tax on it — excise or customs duty, or VAT — you may not need to pay service tax on it. (The exception being restaurant bills, where you might pay both!)

There are other "exemptions" to service tax, such as the maintenance charges you pay to your housing society (if the total amount is less than Rs. 5,000 per month).

While you may fret that now everything else comes under service tax, note that the small service provider will not pay any service tax unless he makes more than Rs. 10 lakhs (Rs. 1 million) in a year. This spares you from the tax at the micro level.

We've got to get used to service tax, but it might not be quite as bad as initially thought. One of the biggest expenses — residential rent — is exempt, as is education and transport. And for the rest, it's only logical for us to pay, since taxes are applicable in every other kind of transaction: from soaps to cars to salaries.

Deepak Shenoy writes at Capital Mind, and is co-founder at MarketVision, a financial knowledge company. You can reach him at deepakshenoy@gmail.com or @deepakshenoy.

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