Service tax exemption limit to be raised to Rs 25 lakh in Budget

The Ministry of Finance is planning to make the forthcoming general budget people-friendly. According to informed sources, the service tax exemption limit is expected to be increased from Rs 10 lakh at present to Rs 25 lakh.

This is being seen as a major step aimed at benefitting traders and businessmen who are likely to come within the ambit of the proposed Goods and Service Tax (GST).

The increase in the service tax exemption limit will not only benefit small scale traders, but also ensure that the compliance burden to monitor the indirect tax administration will be reduced.

Finance Minister Arun Jaitley will present the general budget for 2016-2017 on February 29.

According to the sources, the finance ministry will not just increase the payment exemption in the service tax limit, but simultaneously also consider starting a turnover-based system for the limit above GST.

According to the Excise Act, small scale traders are exempted from payment of tax when the fiscal cost of goods is less than Rs 1.5 crores in a financial year. Now, the limit of the excise duty can be reduced from Rs 1.5 crore, but it will also have a compounding option.

In 2006-07, the service tax collection in indirect tax was to the tune of Rs 37,600 crores, whereas for fiscal 2016-17, it is expected to be an estimated Rs 210,000 crores.

These moves mark a significant advance in the ease of doing business and could pave the way for implementation of GST.

Meanwhile, the IT sector has sought relief from double taxation on software products in view of the protectionist measures being taken in the global market.

The government has imposed service tax on software downloaded from the Internet, whereas service tax and VAT is being imposed on software available in the domestic market.