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Service tax hike to 14% becomes effective today
June, 01st 2015

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 percent.

Finance Minister Arun Jaitley in his Budget had proposed to raise service tax from 12.36 percent (including education cess) to 14 percent. 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 percent from June 1.

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

Jaitley had proposed to raise the service tax rate to 14 percent 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 percent to a consolidated rate of 14 percent," 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 percent Swachh Bharat cess on selected services, the government is yet to come out with a notification in this regard.

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