According to the new service tax rules, service companies will be allowed to claim tax deduction for telephone connections, if these are installed in the premises of the company.
Tax analysts said this would mean that if the company had provided mobile connections to its employees, then it could not set off their service tax expense against its tax liability.
The service tax notification, which has come into force with the enactment of the Finance Act, has broadened the ambit of service tax credit for companies in the services sector to tax paid on input services.
However, it has added a rider that if the services it receives are of the same type as its own product, then the credit will be applicable retrospectively from August 16, 2002. But for other services, the credit will be applicable with effect from May 14, 2003.
Tax analysts said this meant that even small establishments like beauty parlours and Internet cafes would now have to maintain two sets of accounts for the services they received.
One would include the services from those agencies that were not taxable and the other would list those that were taxable, they added.
According to the government notification, if a company does not separate the accounts, then it will get a tax abatement of only 35 per cent of the amount of tax it suffers.
In the Budget for 2003-04, the government had broadened the ambit of service tax by bringing it under the central value-added tax (cenvat) chain and had raised the tax rate to 8 per cent from the earlier 5 per cent.
The service tax rate for air travel agents has been raised to 0.4 per cent of the value of each domestic ticket booked and 0.8 per cent of the value of each international ticket booked.
The agents, therefore, have the option of either paying service tax at these rates or a flat rate of 8 per cent.
The Centre has also asked the goods transport sector to file their service tax returns for the period from December 16, 1997, to June 2, 1998.
While the service tax on this sector was withdrawn by the Centre, an order of the Supreme Court had kept the filing of the returns in abeyance. The revenue department has got the order vacated.
The fine print
