The government has refrained from rolling back the 2% cut in service tax it had brought in as part of its stimulus package for the Indian industry last year.
However, the fine print of Budget 2010-11 carries a few points that companies and consumers need to look at closely.
HOW will the budget impact sectors? Where should you invest? Find out on Livemint.com’s Budget 2010 microsite
If your property is being built and you pay the builder a sum of money before receiving the completion certificate, the payment will now come under the ambit of the service tax.
Your air ticket will also attract service tax, no matter which class you travel in. Earlier, service tax applied only to first-class tickets, but now tax will be levied on all classes of domestic and international air tickets.
In the 2009-10 Budget, the government had reduced service tax from 12% to 10% as a boost for the services sector reeling under the global slowdown.
This year, although the tax rate remains the same, finance minister Pranab Mukherjee’s riders will impact the earnings of the service sector in the fiscal year beginning 1 April.
Turbulence: Get ready to pay more, irrespective of the class you fly. Hemant Mishra/Mint
However, there is some cheer for insurance companies and their clients. They will now have to pay service tax only on fund management charges instead of the overall charges they used to impose on policyholders every year.
“Earlier, we had to levy a service tax on all three sets of charges—premium allocation charge, administration charge and fund management charge,” said Gaurang Shah, managing director, Kotak Life Insurance Co. Ltd.
“But now we will levy this tax only on the fund management charge, which is capped at 1.35% of the fund value. This only means better maturity value for the investor.”
This brings insurance policies, particularly unit-linked insurance plans, at par with mutual fund schemes.
This year’s Budget has left the service tax rate unchanged to maintain the growth momentum, and since it proposes to introduce a goods and services tax in 2011-12 at a rate of 12%.
As the excise levy has been moved to 10%, the rate before last year’s stimulus package was announced, both service tax rate and excise rate will stand at the same level in 2010-11.