Tuesday, November 10, 2015

Service tax is set to increase from 14% to 14.50% due to 0.5% Swachh Bharat cess



Please find attached link CBEC Notification on Service Tax - Swachh Bharat Cess calculated at the rate of 0.5 percent.


Analysis of Notification

Service tax is set to increase from 14% to 14.50% due to 0.5% Swachh Bharat cess

Service tax is a tax levied by the central government and you have to pay this for certain services. It is the end user who pays this tax

Last week, the Ministry of Finance issued a circular stating that the government has decided to impose a Swachh Bharat cess at the rate of 0.5% on all services presently liable to be charged service tax, with effect from 15 November. This means that for every Rs.100 worth of taxable services, you will be taxed 50 paise as Swachh Bharat cess. According to the finance ministry, the proceeds from this cess will be exclusively used for Swachh Bharat initiatives. In a statement, it said, “Swachh Bharat Cess is not another tax but a step towards involving each and every citizen in making contribution to Swachh Bharat.” India taxes services based on a negative list, i.e., any service not especially excluded from this levy is taxed.

IMPACT ON SERVICE TAX

Service tax is a tax levied by the central government and you have to pay this for certain services. It is the end user who pays this tax. In June, the government had increased the service tax rate to 14% (inclusive of all cess) from 12.36% earlier, making services more expensive for the end user.

In budget 2015, a provision was made for levying a Swachh Bharat cess on all or any of the services, for the purposes of financing and promoting Swachh Bharat initiatives. With the addition of 0.5%, the service tax will go up from 14% to 14.50%. This means for every Rs.100 paid for a service you will be taxed Rs.14.50.

The 0.5% cess is much lower than the rate mentioned in the Finance Bill this year. In February, the Bill had enabled a provision to empower the central government to impose a Swachh Bharat cess on all or any of the taxable services at a rate of 2% of the value of such taxable services.

WHAT IT MEANS FOR YOU

Any service that attracts service tax will now become more expensive. The added cess means that for restaurant bills, air tickets, mobile phones, and many other things, you will have to pay more from 15 November. Financial services are also liable to service tax. For instance, the cess would apply to all banking service fees for products such as savings account, fund transfer and credit card, as these come with service tax attached. Processing, prepayment and late payment fees for various types of loans—home, auto and personal loans, for example—carry service tax. Besides banking products, financial instruments such as insurance and equity also attract service tax. So, all these services will now cost more after the cess is levied.

In case of insurance, the service tax depends on the type of policy. For pure insurance policies, the entire premium is subject to service tax. For traditional policies, service tax is levied at 3.5% on the entire first-year premium.

When you buy stocks, you are liable to pay service tax on brokerage for transactions such as buying and selling shares, futures and options.

You will be able to see the service tax break-up in bills. All services that are exempt from service tax will also be exempt from the Swachh Bharat cess.


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