Eating out, making calls will now pinch pockets more

People will have to shell out more from Monday while using mobiles, eating out and travelling as the service tax rate goes up to 14 per cent.

Finance Minister Arun Jaitley in his Budget had proposed to raise service tax from 12.36 per cent (including education cess) to 14 per cent. The proposal takes effect from June 1. 

The tax is levied on all services, expect a small negative list.

Some of the key services that will attract higher tax and hence become costlier are: railways, airlines, banking, insurance, advertising, architecture, construction, credit cards, event management and tour operators.

Mobile operators and credit card companies have already started sending messages to subscribers conveying the increase in service tax rate which will have a bearing on the bills.

According to railway ministry officials, fares for First Class and AC classes in passenger trains, besides freight charges, will go up by 0.5 per cent from June 1.

“Currently, 3.7 per cent service tax is levied on train fares for AC Class, First Class and freight. This will go up to 4.2 per cent from June which means the rise is only 0.5 per cent,” the official said. Currently, there is abatement of 70 per cent on passenger services.

Jaitley had proposed to raise the service tax rate to 14 per cent to facilitate a smooth transition to the Goods and Services Tax (GST) regime, which the government wants to roll out from April 2016.

Once implemented, GST will subsume service tax, excise and other local levies.

“To facilitate a smooth transition to levy of tax on services by both the Centre and the States, it is proposed to increase the present rate of service tax plus education cesses from 12.36 per cent to a consolidated rate of 14 per cent,” Jaitley had said in Budget speech.

Education cess, which is levied on service tax, will be subsumed in the service tax rate with effect from June 1.

Although the Budget also proposed a 2 per cent Swachh Bharat cess on selected services, the government is yet to come out with a notification in this regard.

However, the government has decided to delay the imposition of a 2 per cent Swachh Bharat cess for the time being. Officials said it has been decided to notify the Swachh cess at a later date as imposition at this stage may make the tax hike unpopular.

The Swachh cess may be imposed on a select few. Those which may be taxed include insurance, manpower recruitment, luxury hotels and restaurants, air travel and advertising.

Resources generated from the Swachh cess will be used to fund and promote moves to clean up India, including clean rivers such as the Ganges.