The finance ministry is considering a proposal to raise the service tax limit from Rs 4 lakh (Rs 400,000) to either Rs 7 lakh (Rs 700,000) or Rs 10 lakh (Rs 1 million) in the coming Budget.
"The ministry is actively considering the proposal as there is a view that the Rs 4-lakh limit is too low," government officials told Business Standard.
"The ministry has found that despite the threshold, many small service providers are still in the tax net. Since the amount of tax collected from them is small, the cost of collection turns out to be higher than the revenue mopped up," the officials added.
The government had, in March last year, set a limit of Rs 4-lakh as relief for small service providers. Finance Minister P Chidambaram had announced that 80 per cent of service providers could be out of the tax net.
There are around 4 lakh service tax assessees. Of them, less than 50 per cent file returns. Several central ministries, including the ministry of commerce and industry and the ministry of small-scale industries, have sought either exemption from service tax or an increase in the limit.
The finance ministry is already looking at bringing the telecom and financial services sectors under the purview of service tax. At present, 81 services attract the tax.
Given the good growth in service tax mop-up, Chidambaram had directed the revenue department to set its internal service tax collection target at Rs 22,000 crore (Rs 220 billion) in this fiscal year against Rs 17,500 crore (Rs 175 billion) stipulated in the Budget.
Till December 2005, the department had garnered Rs 13,781 crore (Rs 137.81 billion), over 65 per cent more than the Rs 8,330 crore (Rs 83.30 billion) collected during April-December, 2004-05.
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