The services provided by several kinds of outsourcing firms, including those in the back-office and knowledge-processing businesses, will be considered exports, clarified a finance ministry notification. A service provided from India will be considered an export, provided the recipient of the service is located overseas, S. Madhavan, executive director (tax and regulatory services) at audit firm Pricewaterhouse Coopers interpreted the notification as saying.
The notification removes the ambiguity surrounding the export of intellectual services because firms in this business found it difficult to demonstrate delivery of service outside India. Some government officials overseeing service tax had even suggested that back-office services did not qualify for export benefits even if the customer was overseas.
The ministry also provided relief to some service-tax payers, including those who earn rental income on commercial property, contractors involved in construction and firms providing turnkey solutions related to infrastructure. The property tax paid by landlords will be excluded while calculating service tax payable on commercial rentals, said a government press release.
The ministry also provided contractors some flexibility. They can either pay tax of 2% on the value of services provided relating to the construction contract or 4% on the entire value of the contract, including materials bought for construction, said J.K. Mittal, co-chairman, expert committee on indirect taxes, Assocham. Previously, such contracts were taxed a uniform 4% of their total value. Mittal said contractors had opposed this because some contracts included the value of the land or other inputs into the project.