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MOs get a service tax tag
June, 30th 2006

Sending a money order has become more expensive. Since mid-June, all post offices (PO) in the country have started collecting service tax on money orders (MOs). With the government introducing a new clause to the Finance Act, 1994, the definition of the term, Banking and Financial Services has undergone a drastic change.

Tax experts say the amendment aimed to bring commercial firms involved in remittance of funds into the service tax gamut. But this has also brought the department of posts and telegraph into the service tax bracket, though its a government-owned institution.

You paid Rs 5 to the local post office for every Rs 100 you sent via a MO till a week ago. So, for remitting Rs 500, you paid a charge of Rs 25. Now, you will have to shell out an extra Rs 4, which takes the total charge to Rs 29.

Now, all entities involved in the service of banking and transfer of money, including telegraphic, mail or electronic transfer, have become liable to pay a service tax of 12.24% on commission earned by these entities.

The government has widened the service tax net to include entities carrying out the business of fund transfer. The PO can be used for fund transfer, namely ordinary MO, speed post, instant MO and telegraph. In March 06, however, the Centre had excluded services provided by the Reserve Bank of India from the service tax bracket.

According to Prasad Paranjape, director, RSM Advisory Services, the Centre may issue a notification to exclude specified government-run agencies like the Department of Posts and Telegraph from the tax gamut as they are not run with a profit motive. with due consideration to the fact that these agencies are mainly run for the purpose of public welfare and not driven by a profit motive.

On an average, sources say Mumbais General Post Office remits more than Rs 1 lakh a day. The amount rises 60-70% in the first fortnight of every month, and especially on Sundays.

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