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Rediff.com  » Business » Insurance, healthcare to give maximum service tax

Insurance, healthcare to give maximum service tax

March 02, 2011 10:38 IST
Industry may have been criticising the Budget proposals to levy service tax on insurance and health services, but the expected revenue mop-up from these services explains the reason behind the finance minister's move.

The proposed expansion of the service tax net will add Rs. 6,050 crore (Rs. 60.50 billion) to the government's service tax kitty and a substantial part of this revenue will come from tax on life insurance services alone.

Tax on services provided by life insurance companies in the area of investments would lead to a gain of Rs. 1,100 crore (Rs. 11 billion) for the revenue department.

Tax on health services, another big-ticket item for the government, is expected to provide revenues worth Rs. 500 crore. Another Rs. 200 crore (Rs. 2 billion) is likely to come from tax on diagnostic services provided by a clinical establishment, a finance ministry official has said.

Tax on hotels and air travel may yield Rs. 500 crore (Rs. 5 billion) each for the government. About Rs. 400 crore (Rs. 4 billion) each will come from tax on money changers and services provided by air-conditioned restaurants, while tax on legal services will add Rs. 250 crore (Rs. 2.50 billion) to the government kitty.

The government will lose Rs. 2,050 crore (Rs. 20.5 billion) on account of some exemptions, which will leave it with a net gain of Rs. 4,000 crore (Rs. 40 billion).

From changes proposed in excise duty, the government will mobilise additional resources of Rs. 6,990 crore (Rs. 69.9 billion), of which Rs. 4,000 crore (Rs. 40 billion) will come from tax on ready-made garments. Further, one per cent tax on 130 exempted items will result in a revenue gain of Rs. 2,500 crore (Rs. 250 billion).

The government will get an additional tax of Rs. 2,110 crore (Rs. 21.1 billion) from proposed changes. There will be a revenue loss of Rs. 1,800 (Rs. 180 billion) crore due to exemptions given in excise and customs, leaving the government with a net gain of Rs. 7,300 crore (Rs. 730 billion).

In direct taxes, the government is expected to lose Rs. 8,500 crore (Rs. 850 billion) due to a reduction in surcharge and another Rs. 6,500 crore (Rs. 650 billion) on account of an increase in the limit for income-tax exemption.

 

Vrishti Beniwal in New Delhi
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