Service Tax

            Ever since I proposed imposition of service tax on international and domestic air passengers in the Budget this year, I have received number of representations expressing concern that this levy would adversely affect the civil aviation sector and would make air travel prohibitive. I would like to clarify that it would not be so. The effective rates of levy, when they come into effect, would be a maximum of Rs.100 per travel for domestic journey in any class and a maximum of Rs.500 per travel for international journey by economy class. Further, domestic air travel to and from the North-Eastern sector would be exempt even from this moderate tax.

            The construction sector has requested for a review of the changes in the service tax law proposed in this year's Budget.  Several suggestions have been made by the trade associations. Considering all the inputs, I propose to provide tax relief to this sector by enhancing their rate of abatement from 67% to 75% of the gross value where such value includes the value of the land constructed upon. Certain procedural bottlenecks relating to the completion certificate prescribed in the law would also be simplified.

            With a view to give thrust to the low cost housing schemes for the urban poor, I propose to exempt service tax on constructions under Jawaharlal Nehru National Urban Renewal Mission (JNNURM) and under Rajiv Awas Yojna.

            The above changes relating to construction sector would be effective from a notified date after enactment of the Finance Bill, 2010.

            I have received suggestions that the present service tax exemption available to the vocational training institutes affiliated to the National Council for Vocational Training and offering courses in designated trades should also be extended to "Modular Employment Skill Development courses" provided by the training institutes registered under 'Skill Development Initiative Scheme' of the Ministry of Labour. As this initiative intends to generate employment to the rural and urban poor, school dropouts and semi-skilled labourers, I propose to accept this suggestion and exempt such courses with immediate effect. The notification to this respect is being issued today.

Service tax changes: air travel caps limited, construction abatement raised and specific housing and skill-course exemptions introduced. Service tax measures cap the effective levy on passenger air travel and exempt domestic North-Eastern travel; construction-sector relief increases the abatement rate from 67% to 75% where gross value includes land and simplifies completion-certificate procedures; exemptions are provided for low-cost urban housing construction effective from a notified date after enactment; modular skill-development courses under the government skill initiative are exempted with immediate effect.