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SERVICE TAX- Changes applicable wef 1st July, 2012





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Sub: SERVICE TAX- Changes applicable wef 1st July, 2012

Dear Sir,

1.     The Service Tax law has undergone major changes in Union Budget 2012. Currently there are 117 odd specified services which are liable for service tax. However Budget 2012 has changed this concept of positive list of services into negative list concept, whereby all services covered in the definition of ‘Service’ will be chargeable to tax except those specified in the negative list, exempt list and excluded list.


2.     Further there are nine activities which are declared to be deemed services like renting of immovable property, construction of complex, use of IPR, development of IT software, service portion in works contract and consumption of food & beverages etc.


3.     In respect of a few specified taxable services where there is a overlapping of service and sale, like works contract etc abatements have been provided. Reverse charge mechanism will apply in case of certain specified services whereby instead of the service provider, service recipient will have to pay service tax on payments made for eg. Freight for transportation of goods, Payments made by business entities to individual lawyers, while in some cases of services provided for manpower or hiring of motor vehicles etc service tax will have to paid partly by the service provided and partly by service recipient.


4.     Service tax will be chargeable on the value of taxable services at 12.36% (including 3% Cess). Service tax will be payable on accrual basis/completion of service or receipt basis, whichever earlier.


5.     The basic exemption for service provider for the taxable services of aggregate value not exceeding Rs 10 lacs in a financial year subject to certain conditions is continued.


6.     Notification no 25/2012-st dtd 20-6-2012 lists out 39 services exempt from service tax and Section 66D gives 17 negative list of services on which service tax is not chargeable.  Prominent ones include;

  • Services by Charitable trusts registered u/s 12AA of IT Act 1961 by way of charitable activities.
  • Heath care services by a clinical establishment like a hospital, clinic or authorised medical practitioner or paramedics.
  • Renting of precincts of a religious place meant for general public or services by person for conduct of any religious ceremony.
  • Legal services provided by an individual as an advocate or a partnership firm of advocates to another advocate/partnership firm of advocates providing legal services or any person other than a business entity or a business entity with a turnover upto Rs 10 lacs in the preceeding financial year.
  • Services provided to or by educational institutions in respect of education including by way of auxiliary educational services or renting of immovable property.
  • Services by Government or a local authority excluding Support services by Government or local authorities. Support services of Government are chargeable to service tax under reverse charge mechanism where the service receiver is liable.
  • Specified services like construction of canal, dam, pipeline etc provided to Government or local authorities.
  • Execution of certain infrastructural services for use of general public like road, airports, ports etc
  • Construction of a new single residential unit otherwise than as a part of a residential complex. (The earlier exemption of upto 12 units for a residential complex is done away with).
  • Renting of hotel rooms having declared tariff below Rs 1000/- per day per room. ( Abatement for declared tariff above Rs 1000/- is decreased to 40%).
  • Restaurant serving food & beverages not having a liquor license and air conditioning in any part of the restaurant.
  • Job work in relation to any goods on which excise duty is payable by principal manufacturer.
  • Trading of goods
  • Any process amounting to manufacture of goods.
  • Selling of space or time slots for advertisements other than advertisements broadcast by radio or television.
  • Admission to entertainment events or access to amusement facilities.
  • Renting of residential dwelling for use as residence.


7.     Notification no 26/2012-st dtd 20-6-2012 grants Abatements in respect of certain services. Those relevant services on which abatements have changed are listed below:

Sr no

Taxable Services

Taxable portion

Effective tax rate



Bundled service of supply of good/drink in a premises Including hotel, convention centre, pandal, club,

Shamiana specially arranged for organising a function together with renting of such premises





Renting of hotels, inns,guest houses,clubs,campsites

Or other commercial places meant for residential /

lodging purposes

(old taxable portion was 50%)





F&B sales in restaurant   (as per valuation rules)

(old taxable portion was 30%)





Works contract( as per valuation rules)

a)      If on value of service( total amount excluding value of property transferred in goods for state VAT purposes)

b)     If not ascertainable as per (a):

  •  If original works (on total amount)    
  •  If pertaining  to Moveable properties(on total amt)  
  •  Other contracts (on total amount)            


















8.     The abatements for Tour Operator liable for tax on taxable portion 25%/10%/40% depending on nature of services; on Goods Transport Agency-taxable portion 25% (3.09%); and for builders on sale to buyers (except where entire consideration is received after issuance of completion certificate by competent authorities) taxable portion is 25% (3.09%) ( provided value of land is included in amount charged to buyer) continues.


9.     Property taxes paid to local authorities like municipal taxes are deductible from rent of immovable property  and service tax will be charged on the balance amount .


10. The major services on which service tax is to be borne by the service recipient and not the service provider under the Reverse charge mechanism are:

                                                                         Effective Tax Rate

  •  Goods transport agency services                                 3.09%
  •  Servicesprovided by individual lawyer                   12.36%
  •  Support services by Government/local authority   12.36%


11.In the following cases the reverse charge mechanism is applicable only if the service recipient is a company (Pvt ltd/ltd) and the service provider is a non-body corporate (eg individual/firm/LLP).

         Works Contract services

         Renting or hiring of motor vehicle to carry passenger

         Supply of manpower services   

In the above cases the service liability will have to be shared both by service provider and service recipient in specified shares  eg. on work contracts, 50% will have to borne by service recipient and 50% by service provider .


12.To summarise, wef 1st July, 2012 all services are taxable and only services specified in negative list or exemption notification are not liable for payment of service tax.

Kindly note that the above information is provided to you for general guidance.

Complete list of negative and exempt list of services has been posted on our website 

Incase for guidance of any doubt regarding applicability of service tax on your business contact us personally for guidance.



Ashish V. Prabhu Verlekar


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