In the first full year budget 2015-2016, Hon'ble Prime Minister Modiji and Mr. Jaitley has tried to boost the confidence of people by giving many exemptions, pension schemes and so on. However, to meet all these expectations there must be increase in government's revenue. To meet the requirement of revenue, the rate of service tax which is currently 12.36% (inclusive of Education Cess and Higher & Secondary Education Cess) has been proposed to be increased to 14%. The increased rate of 14% will come into effect from the date to be notified after the enactment of Finance Bill.
The new chapter VI has also been added for introduction of "Swachh Bharat Cess".The relevant text of chapter VI of fianance bill reads as under.
"117(2) There shall be levied and collected in accordance with the provisions of this chapter, a cess to be called the Swachh Bharat Cess, as service tax on all or any of the taxable seervices at the rate of two per cent on the value of such serevices for the purposes of financing and promoting Swachh Bharat initiatives or for any other purpose relating thereto.
(3) The Swachh Bharat Cess leviable under sub-section (2) shall be in addition to any cess or service tax leviable on such taxable services under chapter V of the Fiance Act, 1994, or under any other law for the time being in force."
Swachh Bharat Cess will be 2% on all or any of the taxable services in addition to the service tax. Therefore, it may be imposed on all the taxable services or it may be imposed only on the selective services. The statutory provisions will be amendmed accordingly. It will be used for financing and promoting Swatchh Bharat initiatives or for any other purposes relating to Swatchh Bharat. It will come into effect from the date to be notified after the enactment of Finance Bill.
Therefore, overall increase in rate of service tax is approximately3.64%. This increase in rate of service tax shows that government is gearing up for GST and I feel that it is sign of GST percentage which will be between 16% to 19%. This is step towards fixation of GST percentage and simultaneously preparing the service segment for higher percentage.
It is to be noted that till the timedate has not been notified for increase in rate of service tax, there is no change in it. It will be same i.e. 12% service tax, 2% education cess on service tax and 1% Higher & Secondary education cess on service tax.
Only after the enactment of finance bill, the date will be notified and from the notified date the rate of service tax &Swachh Bharat Cesswill be as follows.
➢ Service Tax – 14%
➢ Swachh Bharat Cess – 2% in addition to service tax.
It is to be noted that from the date to be notified after enactment of finance bill, there will not be any education cess or higher & secondary education cess seperately.
The effect of increase in rate of service tax will be triggered by rule 4 of the Point of Taxation Rules. The applicability of change in rate of service tax &Swachh Bharat Cess (SBC) under different situation is analysed below. While analyzing the different situations below, it is assumed that rules for point of Taxation has been amended accordingly to apply to SBC and SBC has also been levied and imposed on all taxable serviceson the same date.
Scenario 1 - In case where Taxable services are provided before the date to be notified after the enactment of Finance Bill
Scenario 2 - In cases where Taxable services are provided after the date to be notified after the enactment of Finance Bill
The alternative service tax rates has been provided under Rule 6 of Service Tax Rules, 1994 with repsect to the services provided by Air Travel Agent, Insurance Service, Money Chaging, Lottery Distributor & Selling Agent. Consequent to the increase in rate of service tax, alternative rate has also been increased proportionately. This will also come into effect when the new rates of service tax comes into effect.
(a) New rate of service tax on Air Travel Agent will be as follows.
➢ 0.7% of the basic fare in the case of domestic bookings.
➢ 1.4% of the basic fare in the case of international bookings.
(b) Rate of service Tax on Life Insurance business will be as follows.
➢ 3.5% of the premium charged from policy holder in the first year and
➢ 1.75% of the premium charged from policy holder in the subsequent years.
(c) Rate of Service Tax on purchase and sale of Foreign Currency will be as follows.
The rate of service tax on purchase and sale of foreign currency has been also been increased proportionately and the slab-wise rate chart is as follows.
(d) Rate of Service Tax on promotion, marketing, organising or in any other manner assisting in organising lottery will be as follows.
The rate of service tax on promotion, marketing, organising or in any other manner assisting in organising lottery has been increased proportionately and the new slab-wise rate chart is as follows.
In all the above cases enumerated in points a) to d) Swachh Bharat Cess will be additionally levied.
This increased rates of service tax reminds me the wordings of "Benjamin Franklin"
"Nothing is certain but death and Tax".
Source: www.taxmann.com
