Home > Knowledge Centre > Service Tax Hiked – Swachh Bharat Cess Imposed – Stamp Duty to Fall for Ews, Lig & Mig

The Government has proposed to hike the Service Tax, impose new Swachh Bharat Cess and lower the Stamp Duty for EWS, LIG & MIG.

Circular No. 183/02/2015-ST

F. No. B-1 /1/2015-TRU

Government of India, Ministry of Finance

Department of Revenue, (Tax Research Unit)

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Room No. 153, North Block, New Delhi.

Dated 10th April, 2015

To,

Chief Commissioner of Customs and Central Excise (All)

Chief Commissioner of Central Excise & Service Tax (All)

Director General of Service Tax

Director General of Central Excise Intelligence

Director General of Audit Commissioner of Customs and Central Excise (All)

Commissioner of Central Excise and Service Tax (All)

Commissioner of Service Tax (All)

Dear Madam/Sir,

Subject: Clarification on Rate of Service Tax

Doubts have been expressed in various forums regarding the proposed increase in the rate of service tax from 12.36% (including education cess) to 14% on the value of taxable service.  

2. It may be noted that changes proposed in the Budget have/are coming into effect on various dates as already indicated in JS (TRU-II) D.O. letter dated 28th February, 2015. Certain amendments made in the Finance Act, 1994, including the change in service tax rate, will come into effect from a date to be notified by the Government after the enactment of the Finance Bill, 2015.

3. In this regard your attention is invited to clause 106 of the Finance Bill, 2015 and paragraph 3 of JS (TRU-II) D.O. letter is reproduced below:-

“3. Service Tax Rate:

3.1 The rate of Service Tax is being increased from 12% plus Education Cess to 14%. 

The ‘Education Cess’ and ‘Secondary and Higher Education Cess’ shall be subsumed in the revised rate of Service Tax, thus, the effective increase in Service Tax Rate will be from the existing rate of 12.36% (inclusive of cess) to 14%, subsuming the cess.

3.2 In this context, an amendment is being made in Section 66-B of the Finance Act, 1994. Further, it has been provided vide Clauses 179 and 187 respectively of the Finance Bill, 2015 that sections 95 of the Finance Act, 2004 and 140 of the Finance Act, 2007, levying Education Cess and Secondary and Higher Education Cess on taxable services shall cease to have effect from a date to be notified by the Government.

3.3 The new Service Tax Rate shall come into effect from a date to be notified by the Central Government after the enactment of the Finance Bill, 2015.

3.4 Till the time the revised rate come into effect, the ‘Education Cess’ and ‘Secondary and Higher Education Cess’ will continue to be levied in Service Tax.”

4. The paragraph reproduced above is self-explanatory and it is clear that the new Service Tax Rate shall come into effect from a date to be notified by the Central Government after the enactment of the Finance Bill, 2015. The date will be notified in due course after the enactment.

5. Similarly, certain doubts have been raised with regard to abatement on value of services provided in relation to serving of food or beverages by a restaurant, eating joint or a mess, having the facility of air-conditioning or central air-heating in any part of the establishment, at any time during the year. Valuation of services provided in relation to serving of food or beverages by a restaurant, eating joint or a mess is determined as provided in Rule 2-C of the Service Tax (Determination of Value) Rules, 2006.

5.1 In the Union Budget, 2015, no change has been made in these rules; therefore, any confusion is unwarranted. Further, as explained above, the rate of service tax on the specified portion of the amount charged for such supply which is 40% continues to be 12.36% (including cess) at present i.e. 4.944 %. The rate of Service tax, as discussed above, will continue unchanged till a date which will be notified in due course.

6. Wide publicity may be given so that assesses and public are aware of the above.  All the major Industry/Trade Associations may be informed accordingly. 

Yours sincerely, 

(Dr. Abhishek Chandra Gupta)

Technical Officer, TRU

Tel: 011-23095547

“SWACHH BHARAT CESS”

A new Chapter VI has been inserted in the Finance Bill, 2015 that contains a new levy of cess called the ‘Swachh Bharat Cess’ which may be levied on all or any of the taxable services at the rate of 2% of the value of such services.

Hence, Service Tax Rate may increase from present 12.36% to 16% for specified services on which “Swachh Bharat Cess” is levied from a date notified later. Therefore, it is to be noted that higher rate of Service Tax from 12.36% to 14% and “Swachh Bharat Cess” of 2% thus, aggregating 16% will become effective only from the date to be notified.

Further, the changes in Negative List of Services will also come into effect from the date notified later.

STAMP DUTY LOWERED FOR EWS, LIG & MIG

Stamp Duty may come down for houses up to 750 sq ft. creating three new categories for houses with carpet area of less than 750 sq ft, the Draft Housing Policy proposes to reduce Stamp Duty from 5 per cent to 1, 2 and 3 per cent respectively. Registration fees will also be brought down from maximum of Rs 25,000 to Rs 1,000. The tough task of buying a home in the city is presumably set to get a tad easier with the Government planning to reduce the Stamp Duty and Registration Fees.

The Stamp Duty for the three categories will also be levied based on the market rate instead of the Ready Reckoner Rate. In the Draft Housing Policy, the Government has created three categories of homes with carpet area of up to 70 sq. mtrs (approximately 750 sq. ft.) i.e. Economically Weaker Sections (EWS), Lower Income Group (LIG) and Middle Income Group (MIG).

For these three categories, the Stamp Duty will be reduced from 5 per cent to 1, 2 and 3 per cent respectively. Also, instead of levying the duty on the higher amount between the market rate (the rate at which the buyer purchases the flat) and the Ready Reckoner Rate (Government Rates used to calculate taxes); buyers will now have to pay stamp duty on the market rate.

If a buyer buys a flat which has a market value of Rs.1 crore, but the Ready Reckoner Rate is Rs 1.5 crore, he has to pay 5 % of Rs 1.5 crore, which amounts to Rs 7.5 lakhs.

After the housing policy comes into effect, however, he will have to pay 1, 2 or 3 per cent of Rs 1 crore, which would amount to Rs 1 lakh, Rs 2 lakhs, and Rs 3 lakhs respectively based on whether the house falls in the EWS, LIG or MIG category. The registration fee across all three categories has also been reduced from Rs 25,000 to Rs 1,000.

The Stamp Duty and registration norms will, however, remain unchanged for flats in the High Income Group (HIG) category, which is for flats above 750 sq ft.

The Stamp Duty and Registration Fees are significant expenses for a home buyer, irrespective of whether a new house is being purchased from a builder or is one that is being resold. This documentation also officially establishes the ownership of the flat. The reduction in Stamp Duty and Registration Fee will make homes up to 750 sq ft more affordable and give builders incentive to construct more such houses. The Draft Housing Policy which has been prepared by the State Housing Department has been submitted to the Housing Minister and is expected to be tabled in the Cabinet by end of May, 2015.

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