Service tax net widened: New rules mean filmstars' income from promotional adverts will take on new levy

The new service tax regime that kicked in on July 1 has cast the net much wider - from including sportspersons earning match fees and prize money exceeding Rs 10 lakh to filmstars who make big bucks from promotional ads and events.



So, B-town's money-spinners such as Shah Rukh Khan who is the brand ambassador for Tag Heuer, Pepsi's new face Ranbir Kapoor, Garnier girl Priyanka Chopra and Katrina Kaif who appears in the hot Slice ad will now have to shell out the dough for their sideshows as well.



A senior official finance ministry confirmed to Mail Today that filmstars will be taxed on advertising and promotional activities.



Actor Shah Rukh Khan models for a Tag Heuer advertising campaign

These events will bracketed in a separate category from their roles in films which are already subjected to income tax, the official revealed on Wednesday.



The fresh set of rules will come as a double whammy for top cricketers like M.S. Dhoni, Sachin Tendulkar and Virat Kohli because they are likely to pay a part of their match fees as well as that of the hefty amounts collected by endorsing a slew of products.



A 12.36 per cent service tax will now be levied on all players – men and women – who earn more than Rs 10 lakh from match fees (this includes prize or award money). Coaches, match referees, umpires and other support staff of teams earning above Rs 10 lakh annually will also be taxed.



Katrina Kaif poses provocatively with a mango slice

Even commentators will come under the ambit of the changed rules. Furthermore, all experts – coaches, physiotherapists, trainers, etc – hired on contract by the BCCI's National Cricket Academy in Bangalore will be similarly taxed.



The BCCI will pay service tax on behalf of the boards of various countries and foreign players and team support staff who play in the Indian Premier League as well as the Champions League T20 under the 'reverse charge mechanism'.



The government has also changed the definition of a 'recognised sports body'. According to a presentation made by BCCI tax consultant S.S. Gupta at a workshop organised for the board's affiliated units recently, six types of 'recognised sports bodies' exist under the changed definition.

They are: (a) the Indian Olympic Association (b) the Sports Authority of India (c) national sports federations recognised by the ministry of youth affairs and sports and its affiliate federations (d) national sports promotion organisations recognised by the sports ministry (e) the International Olympic Committee (IOC) or a federation recognised by the IOC (f) a federation or a body that regulates a sport at the international level.



But there are several grey areas and the sports federations have asked their tax consultants to seek clarity from the government. BCCI vice-president Niranjan Shah said the board had sought clarifications from the government because many aspects were clouded in ambiguity.



The BCCI will pay service tax on behalf of the boards of various countries and foreign players and team support staff who play in the Indian Premier League as well as the Champions League T20 under the 'reverse charge mechanism'

The Indian cricket board, All India Football Federation (AIFF), Hockey India and the Athletic Federation of India (AFI) were now in the process of the ascertaining which areas will be come under the new regime. Hockey India secretary-general Narinder Batra, one of the few vastly experienced persons who manage both hockey and cricket, told Mail Today: 'In hockey, the variation in budget limited.



But we still pay Rs 10,000 to 32 junior men players and 32 junior women to take care of their shoes and kits. Additionally, we provide expensive kits for goalkeepers.



We are not clear on whether we will have to pay service tax on this, too. I have asked our adviser to get a clear picture from the government.'

'We are also trying to find out whether service tax will be imposed on events or retainership category. Another problem is that while the government says all players will have to pay service tax online, many cannot handle the computer,' he said.



AIFF general secretary Kushal Das, too, was not very sure about how the new rules would work out.



'We don't pay match fees to football players when they turn out for the country; only bonuses for winning titles. Players are contracted with clubs, so their income is from clubs,' Das told Mail Today.



Athletics Federation of India (AFI) secretary C.K. Valson was confused as well, but he blamed his ignorance on his foreign trip.



'I am not very sure about the service tax as I was away to Kazakhstan and have just returned. I will find out about it,' he said. Earlier, service tax was applicable on only services specified under the Finance Act, 1994.



Services rendered by sportspersons were not a specified service and, therefore, did not fall in this tax bracket.



There was a 'positive list' that contained names of the items that were not taxed. Now, the government has come out with a 'negative list' that contains the items that are exempted from the new service tax. Most services, with the exception of the 38 that figure in the negative list, turned costlier from July 1.

In fields other than sports, coaching classes and training institutions will come under the service net. But the tax will not be levied on school, college and university education as well as on approved vocational courses.



