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Centre unveils list of services to be kept out of tax net
November, 19th 2011

Non-air conditioned second class train travel, health facilities, metro and monorail, public transport buses, metered taxis and three-wheelers, preschool and recognized education providers are among services which are proposed to be kept out of the service tax net.

The finance ministry on Friday unveiled a fresh list of services which are expected to be out of the service tax web. The revised concept paper on taxation of services based on the negative list would be available for discussion up to December 15.

"Services by religious entities, political parties, decorations and awards have been taken off as the are rendered by persons who may not be engaged in economic activity," said S K Goel, chairman of the Central Board of Excise and Customs.

"The negative list of services should be implemented immediately or we should wait... it is a matter of debate."

Services to account for 75% of GDP

The finance ministry had earlier issued the concept paper on taxation of service on August 31 which included 27 services which had been kept in the negative list. The fresh list includes 22 services which are likely to be out service tax.

"In the case of transport sector, it is proposed to include passenger travel by non-AC second class as also travel in all classes of metro and monorail so as to address the needs of a common man and encourage public transport system," a finance ministry statement said explaining why these services have been kept out of service tax.

The services sector account for over 55% of India's GDP and widening of the net could help garner an extra 20% through the service tax window, officials say. The government plans to net Rs 82,000 crore from service tax in the 2011-12 financial year.

The negative list will include services like funeral, burial and mortuary agencies, interest paid on deposits by bank, services provided by independent journalists, dividend on investments, and transport of passenger in public transport.

Construction, works contract, repair, alteration, renovation or restoration of specified infrastructure for larger public good and residential building comprising a single unit would be out of would not be subjected to service tax as they have been included in the negative list.

While healthcare services are excluded, fitness, weight reduction programmes, health check up, cosmetic or plastic surgery would have to pay service tax as they have not been included in the negative list.

Services, which are provided by the government as well as the private sector, would attract 10%, the existing rate. The 10 services which are provided by both the government and the private sector include insurance, security, port and airport.

"Taxation of services provided by government in areas where it competes with private sector unquestionably finds support," said Goel.

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