The Union finance minister had introduced the Finance Bill, 2010 in the Lok Sabha on February 26, 2010 and proposed to tax 8 new services. On May 8, 2010, the President gave her consent to the Finance Bill and thus the Finance Act, 1994 (14 of 2010) has come into effect from that date.

 SERVICE TAX IS BEING IMPOSED ON THE FOLLOWING SPECIFIED SERVICES:

1) Service of permitting commercial use or exploitation of any event organized by a person or organization [Section 65 (105) (zzzzr)]:- The Services covered under the  section seeks to tax the amount received by a person or organisation, who permits the recording and broadcasting of the event, from the broadcaster, or any other person, who seeks to commercially exploit the event.

2) The existing taxable service ‘Intellectual Property Right (IPR)’ excludes copyright from its scope. Copyrights on (a) cinematographic films and (b) sound recording are being brought under the ambit of service tax. However, copyright on original literary, dramatic, musical and artistic work would continue to remain outside the scope of service tax. [Section 65 (105) (zzzzt)]

3) Service tax on the following health services:

(a) health check up undertaken by hospitals or medical establishments for the employees of business entities; and

(b) health services provided under health insurance schemes offered by insurance companies.

The tax on these health services would be payable only if the payment for such health check up or preventive care or treatment etc. is made directly by the business entity or the insurance company to the hospital or medical establishment.

This new taxable service is defined under Section 65 (105) (zzzzo). Any additional amount paid by the individual (i.e. the employee or the insured, as the case may be) to the hospital would not be subject to service tax. This is to ensure that an individual is not required to pay a tax for which he cannot take credit. Apart from this services provided for maintenance of medical records of employees of a business entity [Section 65 (105) (zzzzp)] are also brought under the Service Tax net.

4) Service provided for maintenance of medical records of employees of a business entity.

5) Service provided by Electricity Exchanges:- In the recent past, exchanges have been set up for transactions in electricity. The Central Electricity Regulatory Commission authorises such exchanges. Since electricity exchanges are not covered by Forward Market Regulations, such transactions are not covered under the commodity exchange taxation. A new taxable service has been introduced [Section 65 (105) (zzzzs)] which seeks to tax the charges recovered for services in relation to assisting, regulating, controlling the business of trading, processing and settlement pertaining to sale or purchase of electricity by the associations authorised by Central Electricity Regulatory Commission.

6) Certain additional services provided by a builder to the prospective buyers such as providing preferential location or external or internal development of complexes on extra charges. However, service of providing vehicle-parking space would not be subjected to tax Section 65(105)(zzzzu).

Taxable Facilities include: (a) prime/preferential location charges for allotting a flat/commercial space according to the choice of the buyer (i.e. direction- sea facing, park facing, corner flat; floor- first floor, top floor; Vastu – having the bed room in a particular direction; number- lucky numbers); (b) internal or external development charges which are collected for developing/maintaining parks, laying of sewerage and water pipelines, providing access roads and common lighting etc; (c) fire-fighting installation charges; and (d) power back-up charges etc.

Exclusions:-

  • Charges for providing parking space have been specifically excluded from the scope of this service.
  • Development charges, to the extent they are paid to state government or local bodies, would be excluded from the taxable value levy.
  • Further, the ministry has already clarified vide its letter dated 26.02.2010 that any service provided by Resident Welfare Associations or Cooperative Group Housing Societies, consisting of residents/owners as their members, would not be taxable under this service.

7) Service of promoting of a ‘brand’ of goods, services, events, business entity etc. [Section 65 (105) (zzzzq)]

8). The promotion, marketing or organizing of games of chance, including lottery, is being introduced as a separate service. Consequently, the Explanation in provision relating to Business Auxiliary Service is being deleted. These are covered by introducing a separate taxable service [Section 65 (105) (zzzzn)] to cover the services in connection with games of chance, organised, conducted or promoted by the client, in whatever form or by whatever name called (such as lottery, lotto) under the ‘Games of chance’ service. The tax would be applicable also to such games conducted online.

The above changes will come into effect from a date to be notified, after the enactment of Finance Bill, 2010.

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