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How the hike in service tax from 10.3% to 12.36% will affect your family budget
March, 19th 2012
The Finance Minister gave and the Finance Minister took away. Even before the cheer over the raising of tax exemption limit could have died down, Budget 2012 delivered a staggering blow by hiking the service tax and excise duty from 10% to 12%. 

So, if you were feeling thrilled at being able to take home a bigger salary, we're here to burst your bubble: your expenses are bound to go up too, more so since the service tax net has been widened to include almost all services that comprise a huge chunk of the household consumption basket. Only 17 items, such as essential education, public transport and services meant for agriculture, are exempt from this tax. 

A good example of little gain on the tax front is your expenditure on health. Though preventive health check-ups for up to Rs 5,000 are exempt, a visist to the dentist or diagnostic tests will be more expensive due to the higher service tax levied on these. You will also be shelling out more on your life insurance policy. 

The service tax on the premium for policies where the mortality charges are explicit has also been raised on the charges. For other policies, the service tax on the gross premium for the first year has been hiked from 1.5% to 3%, while subsequent premiums will be taxed at 1.5%. 

Even the hike in excise duty and customs duty is going to bloat your expenses as manufacturers are bound to pass these on to the end-consumer. Be prepared to pay more on everything from cigarettes and cosmetics to watches and washing machines. If you were planning to buy a sedan this year, increase your savings as the duty on cars that are more than 4 m in length has been hiked from 22% to 24% and 27%, depending on the engine. 

The good news: since these taxes are mostly levied on discretionary spends, not on roti, kapda and makaan, you could tighten your purse strings if you want. Here's a look at how much more you will pay every year as service tax and other indirect taxes. 

Home budget
Home budget

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