Services which are delivered free of cost or in non-monetary terms may also invite service tax, as per the draft Service Tax (Determination of Value) Rules, 2006.
The finance ministry has sought comments from the industry associations on the draft service tax (Determination of Value) Rules, 2006 and the taxation of services (Provided from Outside India and received in India) Rules, 2006 which it has released on Wednesday.
At present, valuation of taxable services are governed by section 67 of the Finance Act, 1994 which provides that the value of any taxable service shall be the gross amount charged by the service provider for such service provided or to be provided.
The existing provision covers only situations where the consideration for the taxable service is received in money terms. There is no specific provision to determine taxable value where the consideration is wholly or partly not in money terms or where the consideration is in money terms but is not known explicitly.
The Budget proposes to include provisions for determining taxable value where the consideration is wholly or partly not in money terms or where the consideration is in money terms but is not known explicitly and to notify rules for prescribing the manner of determination of taxable value.
Service tax expert J K Mittal said that the draft rules also proposed that expenses incurred by a service provider such as travelling expenses, postage and telephone would now be covered under the ambit of the tax and not as reimbursable expenditure.
Mittal said that the draft rules regarding taxation of services provided from outside India and received in India would help exporters as services they receive and consume outside would not be liable to tax. "The rules seek to bring import of services at par with the export of services," he added.
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