Financial sector regulators under service tax scanner
March, 26th 2015
It is the time of the financial sector regulators to come under the scanner of the services tax department. The service tax department has sent notice to Securities and Exchange Board of India (Sebi) for tax dues on income generated through its services. Sources said the total tax liability of Sebi would be Rs 600 crore since April 2012 when the negative list of services was introduced. An email sent to Sebi remained unanswered.
The department is also looking at the services provided by other regulators including the Reserve Bank of India (RBI) and Insurance Regulatory and Development Authority of India (Irdai).
Sources with the central bank state that they haven't received any notice in the recent past.
The service tax department has sought details from Sebi about the income generated from their services since 2012-13.
In 2012, the finance bill was amended to introduce the negative list of services.
Only the services under the negative list are currently not taxed under the service tax regime. Services provided by Sebi and Irdai are not a part of the negative list. However, the negative list includes services provided by RBI, such as forex trading, trading of domestic securities but the services provided to RBI are taxable.
Interestingly, the Sebi Act, RBI Act and Insurance Act exempt these watchdogs from the Income Tax Act.
Section 48 of the RBI Act states that notwithstanding anything contained in [the Income-Tax Act, 1961], or any other enactment for the time being in force relating to income-tax or super-tax, the Bank shall not be liable to pay income-tax or super-tax on any of its income, profits or gains.
The Sebi Act says Sebi from the date of its constitution to the date of establishment of the Board, shall not be liable to pay wealth-tax, income-tax or any other tax in respect of their wealth, income, profits or gains derived.
To gain a relief on the tax demand the markets regulator has written to the Central Board of Excise and Customs (CBEC) seeking clarity on the same.
It should be noted that the regulators are exempted from income tax and there is no specific exemptions from service tax, experts said.
Besides, the board is of the informal view that as this demand is based out of the Finance Act and would supersede any provisions provided by other acts.
However, CBEC has not given a formal communication to the markets regulator. In the meantime Sebi officials have been called to appear before the service tax department this Friday for an assessment of its income derived from services such as Initial Public Offer (IPO), New Fund Offers (NFO), registration fees of brokers.