Service Tax to increase from 14.5% to 15%

In Budget 2016, FM Jaitely has increased the Service Tax @ 0.5% as Krishi Kalyan Cess. As the Budget day 2016 dawned upon us, expectations were lofty; would the government ease taxation? Though the expectation was a high hike, Jaitley did manage to increase it slightly by 0.5 percent in the form of Krishi Kalyan cess. Service Tax to increase from 14.5% to 15%.

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Another cess on the horizon. Owing to the success of the Swachch Bharat cess, the Finance Ministry has now decided to come up with the Krisha Kalyan cess. The proceeds from this burden, will be used to improve agricultural practices, and boost welfare of the farmers.


During the Budget 2015, the FM had increased the Service Tax Rate from 12.36% to 14%. This new rate 14% was applicable from 1st June 2015. Moreover from 15th Nov 2015, Swachh Bharat Cess @ 0.5% also got applicable. Therefore the effective rate of Service Tax is currently at 14.5% with effect from 15th Nov 2015. It seems, the rate is slowly being increased to bring service tax closer to the expected goods and services tax (GST) rate of 17-18%.


The Krishi Kalyan Cess @ 0.5 percent will be levied on all taxable services. The same shall be effective from June 1, 2016. This shall be in addition to any cess or service tax leviable on such taxable services under Chapter V of the Finance Act, 1994, or under any other law for the time being in force. This cess basically means that any taxes paid on the inputs of the final service that you are providing, will be available to you as a Tax Credit.


The proceeds of the Krishi Kalyan Cess shall first be credited to the Consolidated Fund of India and the Central Government may, after due appropriation made by Parliament by law in this behalf, utilise such sums of money of the Krishi Kalyan Cess for such specified purposes.

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