No tax on construction services

Services received and consumed by an individual outside India for personal purposes will be exempt from tax.

The government today announced that services like site-formation, clearance, excavation, earth-moving and demolition provided during the construction of infrastructure projects will be out of the ambit of service tax.

Similarly, commercial or industrial construction services in the construction of major and minor ports have also been exempt.

Parthasarthi Shome, advisor to the finance minister told reporters on Tuesday that the exemptions would be effective from June 16. The nine new services, which were introduced in the budget this year along with the expansion of 12 other existing services would also be effective from June 16, he added.

Bowing to the demands of the shipping industry, the ministry has said the handling of ships in a port outside India, handling or storage of goods carried in a ship outside India or any other services received from a non-resident in the course of the sailing of an Indian ship or a chartered ship registered by an Indian citizen or Indian company, would be exempt from service tax.

The ministry has also decided to extend the abatement of 67 per cent for services provided in the construction of residential complexes. So far, this was only available for commercial complexes. An abatement of 67 per cent means that service tax will be payable only on 33 per cent of the gross amount.

Asked if the levy of service tax had raised the prices of residential complexes, Shome said, "Real estate prices have increased by around 30-35 per cent in the last one year. There is, however, no direct correlation between the tax and the final cost of a flat. Tax can only account for a part of the cost."

R Sekar, joint secretary in the finance ministry said the abatement would only be extended when there was no sale of goods and where no input credit had been used.

The ministry has also taken the view that any taxable service received and consumed by an individual outside India for personal purposes will be exempt from service tax.

The exemption will be available on the existing 72 services and the nine new services. Job work such as polishing or buffing on behalf of a client in the course of manufacturing of cut and polished diamonds and gem stones and plain and studded jewellery of gold and other precious metals have also been exempt from service tax.

The ministry has also amended some provisions of Service Tax Rules, 2005. The registration of input service distributors and small service providers, whose aggregated annual value of taxable services exceeds Rs 300,000, has been made mandatory.

Similarly, services, which are categorised under sub-rule 1 and 2 of the export of service rules will be able to avail the export of service only if the payment of service exported is received by the provider in convertible foreign exchange.

As per another amendment, all service providers who have opted for centralised registration will be allowed to make suo moto adjustment of the excess amount paid and utilise the amount for payment of service tax for the subsequent period.