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Business News/ Money / Calculators/  De-jargoned: Negative list for service tax
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De-jargoned: Negative list for service tax

Services that come under the negative list are exempt from service tax


In every Union budget certain services are removed from the negative list and some are added. This year, advertisements on online and mobile media, film screening in theatres, ATMs, business directories and some other services have been brought under the service tax net, but sale of advertisements in newspapers and other print media has been excluded.

“In recent times, among indirect taxes, service tax has shown the highest rate of growth... To broaden the tax base in service tax, it is necessary to prune the negative list and exemptions to the extent possible. Accordingly, the negative list has been reviewed," said finance minister Arun Jaitley in his budget speech on 10 July. The government plans to collect 7,525 crore from indirect taxes this financial year.

What is the negative list?

Services that come under the negative list are exempt from service tax. The concept of a negative list was first introduced in the Finance Act 2012, which came into effect from 1 July 2012. The Act replaced the Positive List of 119 taxable services. The then finance minister, Pranab Mukherjee, while introducing the negative list in his Budget speech of 2012-13 said that the introduction was a step in the direction of the eventual transition to Goods and Services Tax (GST).

The definition of “service" was introduced in the 2012 Finance Act as “any activity carried out by a person for another for consideration excluding specific activities and includes a declared service".

You can find the negative list in section 66D of the Finance Act, 1994. At present, there are 17 services in it, including metered taxis, auto rickshaws, betting, gambling, lottery, entry to amusement parks, specified transport of goods or passengers and electricity transmission or distribution by discoms.

Most services provided by central or state governments or local authorities are in the negative list, as are those provided by the Reserve Bank of India. Interest on deposits, dividends, and sale and purchase of shares are all exempt from service tax.

There is another list, called the exemption list, which has services that are exempt from service tax. But here, the central government has the authority to announce changes via notifications.

How are services reviewed for taxation?

Only the Parliament can make amendments to the negative list through the annual budget. Based on the socio-economic or industry requirements, services in the negative list or the exemption list are modified. For instance, this year, radio taxis were taken off the list because it was found that the service is luxurious in nature and those using radio taxis can afford to pay service tax.

At the request of the tourism sector, tour operators conducting tours outside India for foreign tourists have been included in the exemption list as the services are consumed abroad.

Any industry or sector as a whole can approach the finance ministry to review their service for exemption with the reason as to why they need to be in the negative or exemption list.

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Updated: 17 Jul 2014, 07:06 PM IST
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