From 1st June, expenses will increase as service tax shall be charged at 14%

The new rate of service tax i.e., 14% shall come into effect from 1st June, 2015. From the date of Budget announcement, among many changes the most talked about was change in rate of service tax. Finance Minister, Arun Jaitely in his Budget 2015-16 announced the new rate of service tax @ 14 per cent.   images (4)

Though there was clarity about the rate of service tax but a lot of confusion aroused about the effective date of its applicability. Many started applying the new rate with effect from 1st April, 2015 itself. For the clarity on this issue, Government had to issue a Circular stating that the new rate shall be effective from the date to be notified in Official Gazette. Even after such notification, many were in doubt about its applicability.

With the Notification Number 14/2015 dated 19th May, 2015, all confusion came to an end. In this notification, Government announced that new service tax rate of 14% shall be effective from 1st June, 2015.

With the hike in the rate of service tax, common people will have to face increase expenditure in their day-to-day life. Not only leisurely expenses, like watching movies, eating in restaurants, air travel etc. will be costlier but also the basics like phone bills, insurance will become expensive. Though in his Budget speech, Jaitley had said that 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 cess from 12.36 per cent to a consolidated rate of 14 per cent.

Increase in service tax shall not only mean a burden on the taxpayers but people shall expect better services from Modi Government. No doubt, increase in tax means increase in outflow from common people but in addition to this, it provides government a high scope to return the tax paid to common people in more better and decorative way. Thus, taxes paid by us come back to us in a different and progressive  route.

Let us understand service tax and its applicability in brief:

It is a tax payable on services provided by the service provider. Such tax may be collected from the recipient of services and shall be deposited to the Government.

All services that are rendered are under the purview of service tax except those specifically mentioned in the Negative List. In India, all service providers except those in Jammu & Kashmir shall pay service tax.

Service Providers shall apply for Registration when the value of taxable services provided exceeds Rs. 9Lakhs within 30days from the date when such services exceeds Rs. 9Lakhs. However, it is to be noted that tax shall be payable only when value of taxable services exceeds Rs. 10Lakhs.

Individuals have to deposit service tax to the Government on the Cash Basis whereas; others have to follow Accrual Basis. For Individuals/ Partnership Firm, service tax shall be deposited quarterly and for others it is monthly.

Earlier the effective rate of service tax was 12% plus cess i.e., 12.36%. Now, with effect from 1st June, 2015 the composite rate of 14% has been notified. From 1st June, expenses will increase as service tax shall be charged at 14%.