Service Tax unchanged, but Transport of goods through Railways comes under Tax Net

Even as Finance Minister Pranab Mukherjee decided

to continue with the 2 percentage point exemption

in service tax to 10 per cent in 2010-11, railways,

airways and insurance sectors received shocks.

Experts say that the measure of keeping the service

tax at 10 per cent is in line with the overall stance of fiscal

consolidation, as maintaining this rate pre-empts 

the introduction of Goods and Services Tax (GST).

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“Service tax being kept at 10 per cent is in line with fiscal 

consolidation…If we know that we are going to move on to 

GST a year later then having two separate rates for

excise and service tax would have been counterproductive,” 

said Rajeev Dimri, analyst with BMR advisors.

“Right now, the government would like to create least

impact on the industry.”

By adding eight new services in the tax regime and

expansion of some of the existing services, the 

government pegged the total receipts from the service 

tax at Rs 68,000 crore during 2010-11, up from Rs 58,000 crore

as per the revised estimates for 2009-10.

Transport of goods through railways, which was till now 

exempted from service tax, will have to bear the burden 

of 10 per cent service tax. Such a measure is expected to

reduce the competitiveness of the railways.

Airways will also be hit as scope of air passenger

transport service has been expanded to include 

domestic journeys and international journeys for 

all classes.

Before such an announcement, service tax was paid only

on services provided to business class and first class of

international flights.

The government also brought the service tax on fund 

management charges (FMC) in unit-linked insurance plans

(Ulips) on same level as mutual funds industry.