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Companies to pay service tax on insurance, phone and transport perks
August, 04th 2012

Firms providing insurance cover, phone or car for personal use to its staff as part of compensation package will have to pay service tax on the benefit extended.

Independent directors would also be liable to service tax on the remuneration paid to them, according to changes proposed by the finance ministry in the new negative list-based service tax regime.

Companies could pass on this burden to the employee, reducing his take home salary.

The Central Board of Excise and Customs, the apex indirect taxes body that reports to the finance ministry, has proposed changes in the draft circular on the new negative tax regime to provide clarity on taxability of various services, staff benefits and employment related transactions.

Under the new regime, any services not mentioned in the list will be levied service tax at the rate of 12%. If services are provided against a portion of the salary foregone by the staff, then they will be considered as having been made for a consideration and thus liable to tax.

In other words, if compensation packages of a senior executive who, for example, has a company provided car for which it deducts some amount from his salary, then employer will be required to pay service tax on the amount.

But, facilities like creche, gymnasium or a health club that are available to all employees without any charge or reduction from the salary will be outside the tax net.

Companies will be able to claim credit for such service tax paid.

Guest house accommodation will be liable to tax only if the tariff for such unit of accommodation is above Rs 1,000 per day.

Reimbursements to pensioners will also be treated at par with those of current employees when such reimbursements arise out of the initial job contract or are in relation to that employment.

However, experts rule out restructuring of compensations packages that are structured on the principle of cost to the company. "It may not trigger restructuring of compensation packages since companies will be able to claim credit for the service tax paid." said R Suresh, managing director, Stanton Chase.

The government had unveiled the negative list regime in the budget 2012-13 as a precursor to the goods and service tax.

 
 
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