TMI BlogRevised Concept Paper on Taxation of Services based on Negative List November, 2011 • CBEC; Ministry of FinanceX X X X Extracts X X X X X X X X Extracts X X X X ..... een added that such introduction at an earlier stage will pave the way for the smooth transition to the GST, and significantly ease the challenges arising out of implementing the GST. It has been further stated that the issues relating to some transactions being considered services by the Central Government and goods or luxury or entertainment by some of the State Governments are independent of the issue whether the taxation is based on positive or negative list. 1.4 Many suggestions have been made on the contents of the negative list also. This revised Concept Paper has been drafted to consider all the relevant issues that may arise if the Negative List is to be introduced either under the existing regime of taxation or at the time of GST. 2. Definition of Service and Taxability 2.1 The earlier Paper had given the definition of service to mean anything which does not constitute supply of goods, money or immovable property A number of specific inclusions or exclusions were further elaborated. Suggestions have been made that the service should be confined to economic transactions or transactions for consideration. These suggestions have arisen primarily because the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovided by the recipient of the service, or leads to profit at the end of a period. The taxable activities will thus exclude transactions carried out free of charge or gratis, without any direct or indirect commercial advantage, or as recreation or hobby. Statutory fines and penalties will also not constitute economic activities . However, commercial demurrages, by whatever name called, for extended use of a service will be taxable. Moreover the presence of profit motive is not necessary while carrying out economic activity. Thus the activities of political parties, religious bodies, in so far as they carry out religious activities, decorations and awards for excellence and not as reward in lieu of recognition for services rendered, will fall outside the charging section. 2.8 It is further clarified that by virtue of Article 366 of the constitution certain supplies are deemed to be supply of goods. They will thus be excluded from the definition of service but only to the extent of the value of goods. 2.9 As stated in the previous Paper, having regard to its characteristics and with a view to remove any ambiguity, the Central Government shall have powers to declare an a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l sector have been expanded to cover transactions and instruments akin to the instruments and transactions indicated in the earlier Negative List. 3. In the case of transport sector, it is proposed to include passenger travel by non-AC second class as also travel in all classes of metro and monorail so as to address the needs of a common man and encourage public transport system. 4. The entry relating to construction has been revisited. It is felt that the tax paid on construction activities is not available as credit under the existing rules except as sub-contractor. Thus a case is made for keeping certain infrastructure projects within the negative list, particularly those that are meant for larger public good. At the same time construction of such projects together with projects meant for social welfare and for non-commercial use of the government will create definitional issues and amount to end-use exemption. Normally construction activities are not included in negative list worldwide. It is now for public debate to what extent construction should be covered in the negative list. 5. Renting of personal dwellings is included in the negative list only to the extent of Rs.1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. Services by organizations registered as non-profit entities under the Income Tax Act 1961 (DTC 2012) in matters relating to public and social welfare activities substantially at or below the costs (excluding health education) 4. Funeral, burial, crematorium and mortuary services 3. Financial Sector 5. Sale, purchase or acquisition of securities, debts, mutual funds and actionable claims on principal-to-principal basis excluding (1)services in relation to such transactions and (2) when acquired in lieu of a service 6. Interest or discount on cheques, promissory notes, bills of exchange or debt instruments 7. Dividend on investments 8. Sale and purchase of foreign currency amongst banks and/or authorized dealers of foreign exchange 4.Transport 9 Transport of passengers with accompanied belongings by: a) Non-AC second class of passenger travel by railway and any class by metro and mono-rail; b) Public transport buses on a point-to-point basis (except tourist buses) and stage-carriage basis; c) Public transport in ship or vessel ..... X X X X Extracts X X X X X X X X Extracts X X X X
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