Finance Minister Pranab Mukherjee has proposed to impose service tax on eight new sectors, including railway freight (barring food grain), health care, low-cost air travel, housing and commercial rental. If implemented, it will impact the middle-and low-income groups.
Leader of Opposition in the Rajya Sabha Arun Jaitley said be it health-care or housing, the wealthy would not face a problem. But the people from middle-income group who depend on insurance for health care or borrow for buying a house “will be the most vulnerable,” he said during a budget discussion in the Upper House.
“More vulnerable you are, the budget pinches you more,” Jaitley said. Proposals like levying service tax on rental income from commercial property would hit the moderate economy.
Mode of transport
According to the budget proposal, only this tax on commercial property would have a retrospective effective from July 1, 2003. “Low cost flying has become a mode of transport for the middle class. It will become 10 per cent costlier,” he said.
At the moment there is no service tax on domestic flight on economy class.
However, the exact burden of Service Tax on all these areas will be known once the Finance Ministry comes up with the necessary notification following the Parliament’s stamp of approval on the Finance Bill.
One of the major shockers was the imposition of the service tax on railway freight with the exemptions of food and other necessary items. In fact, a disappointed Railway Minister Mamata Banerjee urged Mukherjee to reconsider his decision as it may erode the competitiveness of Railways in carrying freight.
Buying a house of choice would be costlier for the middle class who typically make installment payments.
Jaitley said that the budget proposed that certain additional services provided by a builder to the prospective buyers such as providing preferential location or external or internal development of complexes on extra charges would be liable to tax.
Similarly, health services provided under certain insurance schemes as well as health check up offered by the corporate sector to its employees would come under service tax.
The tax on these health services would be payable only if the payment for such health check up or preventive care or treatment was made directly by the business entity or the insurance company to the hospital.
