The government has been upbeat about startup India, ease of doing business and GST roll out. This budget, it seems like, finance minister is likely to make a move which is in line with all three initiatives.
Current threshold under service tax law for exemption is likely to raised from Rs. 10 lacs to Rs. 25 lacs. Increasing the cap will suit startups and other small scale ventures to stay out of service tax net. It also eases compliance and administrative hassles some bit for them.
“There is a case for raising the threshold limit,” said a government official
“The threshold limits of service tax and Cenvat (central value added tax) can be aligned with the eventual GST limits,” said Bipin Sapra, tax partner, EY, endorsing an increase in the threshold.
He sounded a note of caution. “While it would benefit the small service players, care needs to be taken that small manufacturers are not exposed to stringent excise procedures till GST is implemented,” he said. Service tax is the fastest growing of the all indirect taxes—the others being excise and customs–having risen to a budgeted Rs 2.1 lakh crore in FY16 from Rs 37,600 crore in FY06.
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Hike in exemption limit will surely make create a hole in revenue’s pocket. It remains to be seen how the government plans to stitch it.