Chit funds, lottery ticket sales to face service tax

Earnings from chit funds and lottery prizes may come down soon, as the government has proposed bringing the sale of lottery tickets and running of chit funds under the service tax ambit.
According to the Union Budget proposals, presented by Finance Minister Arun Jaitley yesterday, the service tax exemptions have been withdrawn from chit fund foremen and from the sellers and distributors of lottery tickets.
The Finance Bill, 2015 also prescribes the rates of income-tax, the rates at which tax will be deductible at source during 2015-2016 from winnings from lotteries or crossword puzzles, winnings from horse races and card games.

The income by way of winnings from lotteries, crossword puzzles, card games and other games of any sort, on income by way of winnings from horse races will attract a 30 per cent income tax.
"Abatement is being withdrawn from chit fund service. Consequently, service tax shall be paid by the chit fund foremen at full consideration received by way of fee, commission or any such amount. They would be entitled to take cenvat credit," as per the Budget documents.
Chit fund is a saving and borrowing mechanism and comes under the regulations of respective state governments, while foreman is the person who runs such schemes.

In recent times, there have been many instances of people getting duped by fraudulent investment schemes conducted in the garb of chit funds.

With regard to lotteries also, the Budget proposed withdrawal of service tax exemption on "selling or marketing agent of lottery ticket to a distributor".
"The intention in law has been to levy Service Tax on the services provided by... Distributors or selling agents of lottery," the Budget document says.
In this regard, the "consideration for service would include... Amount retained by the distributor or selling agent of lottery from gross sale amount of lottery ticket, or, as the case may be, the discount received, that is the difference in the face value of lottery ticket and the price at which the distributor or selling agent gets such tickets.

The service tax rate itself has been proposed to be increased from 12.34 per cent to 14 per cent, after subsuming the Education Cess and Secondary and Higher Education Cess.
The Budget also proposes that in respect of services provided by lottery distributor and selling agents, the service provider has been allowed to pay service tax at an alternative rate subject to certain conditions prescribed under the Service Tax Rules.
Consequent to the upward revision in Service Tax rate, the said alternative rates shall also be revised proportionately. Amendments to this effect have been proposed in the Service Tax Rules. These amendments shall come into effect as and when the new service tax rate comes into effect.

The Budget also proposes that services provided by "agents of lottery distributor are being brought under reverse charge consequent to withdrawal of the exemption on such services".
"In respect of sub-agents of lottery, Service Tax shall be paid by the distributor or selling agent of lottery. This change will come into effect from April 1, 2015," it added.