Agriculture cess adds to service tax burden; spectrum transfer added to service

A new levy, Krishi Kalyan cess, on all services and activities, including eating out, watching movies in theaters and payment of bills, will make all taxable services more expensive. The Krishi Kalyan Cess will be leviable at the rate of 0.5 per cent on all taxable services.

Presenting the Union Budget 2016-17 in the Lok Sabha today, finance minister Arun Jaitley said the proceeds of the proposed Krishi Kalyan Cess, leviable on all taxable services from 1 June 2016, will be exclusively used for financing initiatives for improvement of agriculture and welfare of farmers.

Proposing amendment to Finance Act 1994, the finance minister said that assignment of right to use telecom spectrum and its subsequent transfers will be a service leviable to Service Tax and not a sale of intangible asset.

Also, an important proposal made was to amend the Finance Act 1994 so as to declare assignment by the government of the right to use the radio-frequency spectrum and its subsequent transfers a service. This will help clarify that assignment of right to use the spectrum is a service leviable to service tax and not sale of intangible goods.

However, the tax on services provided under Deen Dayal Upadhyay Grameen Kaushalya Yojana and services provided by assessing bodies empanelled by ministry of skill development and entrepreneurship are also proposed to be exempted.

Jaitley also said a uniform application of dividend distribution tax (DDT) to all investors distorted the fairness and progressive nature of taxes. He therefore proposed that in addition to DDT paid by the companies, tax at the rate of 10 per cent of gross amount of dividend will be payable by the recipients, that is, individuals, HUFs and firms receiving dividend in excess of Rs10 lakh per annum.

The surcharge was increased from 12 per cent to 15 per cent on persons having income above Rs1 crore. The rate of securities transaction tax in case of 'options' was increased from 0.017 per cent to 0.05 per cent.

In order to tap tax on income accruing to foreign e-commerce companies from India, it was proposed that a person without a permanent establishment in the country making payment to a non-resident exceeding in aggregate Rs1 lakh in a year as consideration for online advertisement, will withhold tax at 6 per cent of gross amount paid as equalisation levy. This levy will apply only on B2B transactions.

It was also proposed to collect tax at source at the rate of 1 per cent on purchase of luxury cars exceeding value of Rs10 lakh and purchase of goods and services in cash exceeding Rs2 lakh.