Taxation of Financial Services Sybbi Final

7/29/2019 Taxation of Financial Services Sybbi Final

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TAXATION OF

FINANCIAL SERVICES

SONALI MALHOTRA

SYBBI

ROLL NO-36


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ACKNOWLEDGEMENT

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INDEXSr No. Particulars

1 INTRODUCTION

2 SERVICE TAX PROVISIONS APPLICABLE TO STOCK

BROKING

3 SERVICE TAX PROVISIONS APPLICABLE TO GENERAL

INSURANCE

4 SERVICE TAX PROVISIONS APPLICABLE TO

INSURANCE AUXILIARY


MANAGEMENT CONSULTANCY

6 SERVICE TAX PROVISIONS APPLICABLE TO CREDITRATING AGENCY


BUSINESS AUXILIARY


BANKING-OTHER FINANCIAL SERVICES

9 BIBLIOGRAPHY


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INTRODUCTION

Service tax is, as the name suggests, a tax on Services. It is a tax levied on thetransaction of certain services specified by the Central Government under

the Finance Act, 1994.

It is an indirect tax (akin to Excise Duty or Sales Tax) which means that

normally, the service provider pays the tax and recovers the amount from

the recipient of taxable service.

Normally, the person? Who provides the taxable service on receipt of service

charges is responsible for paying the Service Tax to the Government (Sec.68

(1) of the Act). However, in the following situations, the receiver of theServices is responsible for the payment of Service tax:

(i) Where taxable services are provided by Foreign Service providers with

no establishment in India, the recipient of such services in India is liable to

pay Service Tax,

(ii) For the services in relation to Insurance Auxiliary Service by an

Insurance Agent, the Service Tax is to be paid by the Insurance Company

(iii) For the taxable services provided by a Goods Transport Agency for

transport of goods by Road, the person who pays or is liable to pay freight isliable to pay Service Tax, if the consignor or consignee falls under any of the

seven categories viz. (a) a factory (b) a company (c) a corporation (d) a

society (e) a co-operative society (f)a registered dealer of excisable goods

(g) a body corporate or a partnership firm

(iv)For the taxable services provided by Mutual Fund Distributors in

relation to distribution of Mutual Fund the Service Tax is to be paid by the

Mutual Fund or the Asset Management Company receiving such

service. [Refer: Sec. 68(2) of the Act read with Rule 2(d) of the ServiceTax Rules, 1994.]


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SERVICE TAX PROVISION APPLICABLE TO STOCK BROKING

Definition and scope of service:

Recognized stock exchange has the meaning assigned to it in clause (f) ofsection 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956).

(Section 65(90) of Finance Act, 1994 as amended)

Securities has the meaning assigned to it in clause (h) of section 2 of the

Securities Contracts (Regulation) Act, 1956 (42 of 1956).


Stock-broker means a person, who has either made an application for

registration or is registered as a stock broker, in accordance with the rules

and regulations made under the Securities and Exchange Board of India Act,1992 (15 of 1992).


Taxable service means any service provided or to be provided to any

person, by a stock-broker in connection with the sale or purchase of

securities listed on a recognized stock exchange.

(Section 65(105)(a) of Finance Act, 1994 as amended)

Rate of Tax and accounting code

Rate of Tax Accounting

Code

Service Tax 12% of the value of

services

00440088

Education Cess 2% of the service tax

payable

00440298

Secondary and

HigherEducation cess

1% of the service tax

payable.

00440426

Other

Penalty/interest

As levied or applicable 00440089

(Rate of tax is effective from 24.02.2012.)


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SERVICE TAX PROVISION APPLICABLE TO GENERAL

INSURANCE


Taxable Service means any service provided or to be provided to a policy

holder or any person, by an insurer, including re-insurer carrying on general

insurance business in relation to general insurance businesses;

[Section 65 (105) (d) of Finance Act, 1994 as amended]

"General Insurance Business" has the meaning assigned to it in clause (g)

of section 3 of General Insurance Business (Nationalization) Act, 1972

[Section 65 (49) of Finance Act, 1994 as amended]

"Insurer" means nay person carrying on the general insurance business orlife insurance business and includes a re-insurer


"Policy Holder" has the meaning assigned to it in clause (2) of section 2 of

the Insurance Act, 1938 (4 of 1938)


(C)Rate of Tax and accounting code

Rate of Tax AccountingCode


services

00440088


payable

00440298

Secondary and

Higher

Education cess


payable.

00440426

Other

Penalty/interest


( Rate of tax is effective from 24.02.2012.)


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( D ) Classification of Taxable Services:

(1) The classification of taxable services shall be determined according to

the terms of the sub-clauses (105) of section 65;

(2) When for any reason , a taxable service is prima facie, classifiable under

two or more sub-clauses of clause (105) of section 65, classification shall be

effected as follows :-(a) the sub-clause which provides the most specific

description shall be preferred to sub-clauses providing a more general

description;

1. (b) composite services consisting of a combination of differentservices which cannot be classified in the manner specified in clause

(a), shall be classified as if they consisted of a service which gives themtheir essential character, in so far as this criterion is applicable;

2. (c) When a service cannot be classified in the manner specified inclause (a)or clause (b), it shall be classified under the sub-clause which

occurs first among the sub-clauses which equally merits consideration.

( Sec.65A of Finance Act,1994)

(E) Valuation of taxable services for charging Service tax

(1) Service tax chargeable on any taxable service with reference to its value

shall,

(i) in a case where the provision of service is for a consideration in money,

be the gross amount charged by the service provider for such service

provided or to be provided by him

(ii) in a case where the provision of service is for a consideration not wholly

or partly consisting of money, be such amount in money, with the addition of

service tax charged, is equivalent to the consideration(iii) in a case where the provision of service is for a consideration which is

not ascertainable, be the amount as may be determined in the prescribed

manner.

(2) Where the gross amount charged by a service provider, for the service

provided or to be provided is inclusive of service tax payable, the value of

such taxable service shall be such amount as, with the addition of tax

payable, is equal to the gross amount charged.


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(3) The gross amount charged for the taxable service shall include any

amount received towards the taxable service before, during or after

provision of such service.

(4) Subject to the provisions of sub-sections (1), (2) and (3), the value shallbe determined in such manner as may be prescribed.

Explanation.For the purposes of this section,

(a) Consideration includes any amount that is payable for the taxable

services provided or to be provided

(b) money includes any currency, cheque, promissory note, letter of credit,

draft, pay order, travellers cheque, money order, postal remittance and

other similar instruments but does not include currency that is held for itsnumismatic value

(c) gross amount charged includes payment by cheque, credit card,

deduction from account and any form of payment by issue of credit notes or

debit notes and book adjustment, and any amount credited or debited, asthe case may be, to any account, whether called Suspense account or by

any other name, in the books of account of a person liable to pay service tax,

where the transaction of taxable service is with any associated enterprise.

( Sec.67 of Finance Act,1994)


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SERVICE TAX PROVISION APPLICABLE TO INSURANCE

AUXILIARYDefinition and scope of service:

Taxable Service means any service provided or to be provided to a policyholder or any person or insurer, including re-insurer by an actuary or

intermediary or insurance intermediary or insurance agent, in relation to

insurance auxiliary services concerning general insurance business.

[Section 65 (105) (zl) of Finance Act, 1994 as amended]

"Actuary" has the meaning assigned to it in clause (1) of section 2 of the

Insurance Act, 1938 (4 of 1938)

[Section 65(1) of Finance Act, 1994 as amended]

"Insurance Agent" has the meaning assigned to it in clause (10) of section 2of the Insurance Act, 1938 (4 of 1938)


"Insurance Auxiliary Service" means any service provided by an actuary,

an intermediary or insurance intermediary or an insurance agent in relation

to general insurance business

"Intermediary or Insurance Intermediary" has the meaning assigned to it

in sub- clause (f) of clause (1) of section 2 of the Insurance Regulatory and

Development Authority Act, 1999 (41 of 1999);[Section 65 (56) of FinanceAct, 1994 as amended]

"Policy Holder" has the meaning assigned to it in clause (2) of section 2 of

the Insurance Act, 1938 (4 of 1938)




CodeService Tax 12% of the value of

services

00440088


payable

00440298

Secondary and

Higher

Education cess


payable.

00440426

Other Penalty/interest




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(2) When for any reason , a taxable service is prima facie, classifiable undertwo or more sub-clauses of clause (105) of section 65, classification shall be

effected as follows :-

(a) The sub-clause which provides the most specific description shall be

preferred to sub-clauses providing a more general description;

3. (b) composite services consisting of a combination of differentservices which cannot be classified in the manner specified in clause

(a), shall be classified as if they consisted of a service which gives them

their essential character, in so far as this criterion is applicable;

4. (c) When a service cannot be classified in the manner specified inclause (a) or clause (b), it shall be classified under the sub-clause which

occurs first among the sub-clauses which equally merits consideration.




shall,





or partly consisting of money, be such amount in money, with the addition ofservice tax charged, is equivalent to the consideration

(iii) in a case where the provision of service is for a consideration which is


manner.



such taxable service shall be such amount as, with the addition of taxpayable, is equal to the gross amount charged.


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SERVICE TAX PROVISIONS APPLICABLE TO MANAGEMENT

CONSULTANCY


Taxable Service means any service provided or to be provided to any

person, by a management or business consultant in connection with the

management of any organization or business in any manner

[Section 65 (105) (r) of Finance Act, 1994 as amended]

Management or business Consultant means any person who is engaged

in providing any service, either directly or indirectly, in connection with the

management of any organization or business in any manner and includesany person who renders any advice, consultancy or technical assistance, in

relation to financial management, human resources management, marketing

management, production management, logistics management, procurement

and management of information technology resources or other similar areas

of management




Code


services

00440088


payable

00440298

Secondary and

HigherEducation cess


payable.

00440426

Other

Penalty/interest





the terms of the sub-clauses (105) of section 65

(2)When for any reason , a taxable service is prima facie, classifiable under


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effected as follows :-

(a) the sub-clause which provides the most specific description shall be

preferred to sub- clauses providing a more general description;

(b) composite services consisting of a combination of different services

which cannot be classified in the manner specified in clause (a), shall be

classified as if they consisted of a service which gives them their essential

character, in so far as this criterion is applicable;

(c) when a service cannot be classified in the manner specified in clause (a)

or clause (b), it shall be classified under the sub-clause which occurs first

among the sub-clauses which equally merits consideration.

(Sec.65A of Finance Act, 1994)



shall,

(i) In a case where the provision of service is for a consideration in money,



(ii) In a case where the provision of service is for a consideration not wholly


service tax charged, is equivalent to the consideration

(iii) In a case where the provision of service is for a consideration which is

not ascertainable, is the amount as may be determined in the prescribed

manner.







provision of such service.(4) Subject to the provisions of sub-sections (1), (2) and (3), the value shall

be determined in such manner as may be prescribed.


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SERVICE TAX PROVISIONS APPLICABLE TO CREDIT RATING

AGENCYDefinition and scope of service:

"Credit Rating Agency" means any person engaged in the business of credit

rating of any debt obligation or of any project or programmer requiring

finance, whether in the form of debt or otherwise, and includes credit

rating of any financial obligation, instrument or security, which has the

purpose of providing a potential investor or any other person any

information pertaining to the relative safety of timely payment of

interest or principal (Section 65(34) of the Finance Act, 1994)

Taxable Service means any service provided or to be provided to any

person, to a client, by a credit rating agency in relation to credit rating of

any financial obligation, instrument or security (Section 65

(105) (x) of the Finance Act, 1994)

(C) Rate of Tax & Accounting Code:

Rate of Tax AccountingCode


services

00440088


payable

00440298

Secondary and

Higher

Education cess


payable.

00440426

Other

Penalty/interest



(D) Classification of Taxable Services:




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(2) When for any reason, a taxable service is prima facie, classifiable under


effected as follows :-(a) the sub-clause which provides the most specific

description shall be preferred to sub-clauses providing a more generaldescription;





(c) When a service cannot be classified in the manner specified in clause (a)or clause (b), it shall be classified under the sub-clause which occurs first


(Section 65A of Finance Act, 1994)



shall,



provided or to be provided by him;



service tax charged, is equivalent to the consideration;



manner.






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(a) consideration includes any amount that is payable for the taxableservices provided or to be provided;

(b) money includes any currency, cheque, promissory note, letter of credit,

draft, pay order, travellers cheque, money order, postal remittance and

other similar instruments but does not include currency that is held for its

numismatic value;



debit notes and book adjustment, and any amount credited or debited, as

the case may be, to any account, whether called Suspense account or by

any other name, in the books of account of a person liable to pay service tax,where the transaction of taxable service is with any associated enterprise.

(Section 67 of Finance Act, 1994)


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SERVICE TAX PROVISIONS APPLICABLE TO BUSINESS AUXILIARY

DEFINATION OF BUSINESS AUXILIARY

Business Auxiliary Service means any service in relation to,

(i) Promotion or marketing or sale of goods produced or

provided by or belonging to the client; or

(ii) Promotion or marketing of service provided by the client; or

(iii) any customer care service provided on behalf of the client; or

(iv)Procurement of goods or services, which are inputs for the

client; or

[Explanation For the removal of doubts, it is hereby declared

that for the purposes of this sub-clause, inputs means all goods

or services intended for use by the client;]

(v)Production or processing of goods for, or on behalf of theclient; or

(vi)Provision of service on behalf of the client; or

(vii) a service incidental or auxiliary to any activity specified in

sub-clauses (i) to (vi), such as billing, issue or collection or

recovery of cheques, payments, maintenance of accounts and

remittance, inventory management, evaluation or development of

prospective customer or vendor, public relation services,

management or supervision, and includes services as acommission agent, but does not include any activity that amounts

to manufacture of excisable goods.

Explanation For the removal of doubts, it is hereby declaredthat for the purposes of this clause,

(a) Commission Agent means any person who acts on behalf

of another person and causes sale or purchase of goods, or

provision or receipt of services, for a consideration, and includesany person who, while acting on behalf of another person

(i) deals with goods or services or documents of title to such

goods or services; or

(ii) collects payment of sale price of such goods or services; or

(iii) guarantees for collection or payment for such goods or

services; or

(iv) undertakes any activities relating to such sale or purchase of

such goods or services;


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(b) Excisable Goods has the meaning assigned to it in clause

(d) of Section 2 of the Central Excise Act, 1994;

(c)Manufacture has the meaning assigned to it in clause (f) of

Section 2 of the Central Excise Act, 1944;

(Section 65(19) of the Finance Act, 1994)

Taxable Service means any service provided or to be providedto a client by any person in relation to business auxiliary service.

(Section 65 (105) (zzb) of the Finance Act, 1994)



CodeService Tax 12% of the value of

services

00440088


payable

00440298

Secondary and

Higher

Education cess


payable.

00440426





(1) The classification of taxable services shall be determined

according to the terms of the sub-clauses (105) of section 65;

(2) When for any reason, a taxable service is prima facie,classifiable under two or more sub-clauses of clause (105) of

section 65, classification shall be effected as follows :-

(a) the sub-clause which provides the most specific description

shall be preferred to sub-clauses providing a more general

description;

(b) composite services consisting of a combination of differentservices which cannot be classified in the manner specified in

clause (a), shall be classified as if they consisted of a service which


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gives them their essential character, in so far as this criterion is

applicable;

(c) when a service cannot be classified in the manner specified in

clause (a) or clause (b), it shall be classified under the sub-clause

which occurs first among the sub-clauses which equally meritsconsideration.

(Section 65A of Finance Act, 1994)


(1) Service tax chargeable on any taxable service with reference

to its value shall-

(i)in a case where the provision of service is for a consideration in

money, be the gross amount charged by the service provider forsuch service provided or to be provided by him;

(ii) in a case where the provision of service is for a consideration

not wholly or partly consisting of money, be such amount in

money, with the addition of service tax charged, is equivalent to

the consideration;

(iii) in a case where the provision of service is for a consideration

which is not ascertainable, be the amount as may be determined

in the prescribed manner.

(2) Where the gross amount charged by a service provider, for the

service provided or to be provided is inclusive of service tax

payable, the value of such taxable service shall be such amount as,

with the addition of tax payable, is equal to the gross amount

charged.

(3) The gross amount charged for the taxable service shall include

any amount received towards the taxable service before, during

or after provision of such service.

(4) Subject to the provisions of sub-sections (1), (2) and (3), the

value shall be determined in such manner as may be prescribed.


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SERVICE TAX PROVISIONS APPLICABLE TO BANKING-OTHER

FINANCIAL SERVICES


Taxable Service means any service provided or to be providedto any person, by a banking company or a financial institution

including a non-banking financial company or any other body

corporate or commercial concern, in relation to banking and other

financial services

[Section 65 (105) (zm) of Finance Act, 1994 as amended]

"Authorized Dealer of Foreign Exchange" has the meaning

assigned to "authorized person" in clause (c) of Section 2 of theForeign Exchange Management Act, 1999 (42 of 1999);


"Banking" has the meanings assigned to it in clauses (b) of

section 5 of the Banking Regulation Act, 1949 (10 of 1949),


"Banking Company" shall have the meanings assigned to it in

clauses (a) of section 45 A of the Reserve Bank of India Act, 1934

(2 of 1934) [Section 65 (11) of Finance Act, 1994 as amended]Banking and Other Financial Services

(a)The following services provided by a banking company or a

financial institution including a non-banking financial company or

any other body corporate or [commercial concern]*, namely :

(i) Financial leasing services including equipment leasing and

hire-purchase;

"Body Corporate" has the meaning assigned to it in clause (7) ofSection2 of the Companies Act, 1956 (1 of 1956); [Section 65 (14)

of Finance Act, 1994 as amended]

"Financial Institution" has the meaning assigned to it in clause

(c) of section 45-I of the Reserve Bank of India Act, 1934 (2 of

1934)[Section 65 (45) of Finance Act, 1994 as amended]

"Non-Banking Financial Company" has the meaning assigned to

it in clause (f) of section 45-I of the Reserve Bank of India Act,

1934 (2 of 1934);[Section 65 (74) of Finance Act, 1994 as amended]


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Code

Service Tax 12% of the

value ofservices

00440173

Education Cess 2% of the

service tax

payable

00440298

Secondary and

Higher

Education cess

1% of the

service tax

payable.

00440426


As levied orapplicable

00440174

( Rate of tax is effective from 24.02.2012.)




(2) When for any reason , a taxable service is prima facie, classifiable

under two or more sub-clauses of clause (105) of section 65, classificationshall be effected as follows :-

(a) the sub-clause which provides the most specific description shall be

preferred to sub-clauses providing a more general description;





(c) when a service cannot be classified in the manner specified in clause (a)or clause (b), it shall be classified under the sub-clause which occurs first




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shall,



provided or to be provided by him;



service tax charged, is equivalent to the consideration;



manner.

(3) The gross amount charged for the taxable service shall include anyamount received towards the taxable service before, during or after


(4) Subject to the provisions of sub-sections (1), (2) and (3), the value shall

be determined in such manner as may be prescribed.


(a) Consideration includes any amount that is payable for the taxable

services provided or to be provided;(b) money includes any currency, cheque, promissory note, letter of credit,

draft, pay order, travelers cheque, money order, postal remittance and other

similar instruments but does not include currency that is held for its

numismatic value;



debit notes and book adjustment, and any amount credited or debited, as

the case may be, to any account, whether called Suspense account or byany other name, in the books of account of a person liable to pay service tax,

where the transaction of taxable service is with any associated enterprise.



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BIBLIOGRAPHY

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Taxation of Financial Services Sybbi Final