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Service contracts set to be renegotiated under GST

Some of the service contracts are set to be renegotiated under the goods and services tax (GST) framework as it levies different tax rates in some peculiar situations, said industry trackers. According to the industry trackers, service contract tax rates would be different if the service provider also provides raw material used to execute the contract. For example if your plumber fixes your tap in your kitchen it could be taxed differently if the tap is brought by him or by you. Experts point out that this will impact several sectors like infrastructure and real estate. In some cases the contracts are already being renegotiated. The Cabinet on Monday cleared GST supplementary legislation. This paves the way for faster GST implementation in the country.

"It is indeed a relief that the GST compensation bill has clarified that compensation cess will be creditable when levied on inputs and can set off against subsequent cess liability. This will set rest the confusion regarding Operation of the cess," said Sachin Menon, national head, indirect tax, KPMG India. "It's a landmark day in India's GST journey. Now that council has formally approved all the GST laws, the Government looks all set to get it approved by the parliament in the current session. Most of the states are also expected to approve the state GST laws in April/ May. It's also good to see a capping on cess at 15% along with clear statement that cess will apply only on select commodities. However, industry still awaits clarity as to whether some of the existing cesses such as swach Bharat cess will continue to operate," said Pratik Jain, indirect tax leader, PwC India. Industry trackers say that the rules are still to be finalised and rates are to be determined over next couple of months. "Given all this, the Government may want to consider to implement GST from 1 September so as to give some more time to industry to prepare for this radical change," added Jain.

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