Among various other announcements made during the Union Budget 2015-16, Finance Minister Arun Jaitley made a very crucial decision of increasing service tax from 12.36% to 14%. Additionally, a 2% Swatch Bharat cess will also be implemented across verticals, which makes the effective increase to 14.28% (2% cess is on Service Tax amount only)!
As per the budget statement, “In the new service tax rate the education cess and secondary and higher education cess will be subsumed in the revised rate of service tax. Hence, the effective increase in service tax rate will be from existing rate of 12.36% (inclusive of cess) to 14%”
Find out how this increase in service tax will affect your personal home budget:
The budget announcement has included all ecommerce portals, aggregators of services and affiliates into the gambit of 14% service tax. All ecommerce goods and their shipping will now attract more service tax, hence, the industry will suffer.
Announcing major changes to the Service Tax Rules, 1994, Finance Minister Arun Jaitley said during the budget announcement, “All aggregators which by means of an application and a communication device, enable a potential customer to connect with persons providing service of a particular kind under the brand name or trade name; shall fall under the service tax bracket,”
Uber was the biggest beneficiary of this announcement, as their position became clear. Uber spokesperson said, “We applaud the government’s decision to include specific language pertaining to aggregators in the 2015 Union Budget that will drive improvements to tax compliance.”
All sellers and retailers who sell using Flipkart, Snapdeal, Amazon platform would be liable to pay service tax henceforth; along with online aggregators and services providers such as Quikr, Zomato, FoodPanda, Olx, Housing, Mydala, Cashkaro and Stayzilla.
Praveen Sinha, founder and MD, Jabong.com, said, “The government’s decision to hike service tax rate is a disappointing move.”
Raghunandan G., CEO and cofounder, TaxiForSure, said, “If the government is going to raise the tax burden so significantly, it may only increase the cash burn in the system, thereby reducing our efficiencies. We can opt to pass this on to our customers, however, this step may push them away from our services, as the cost to the customers may increase. We hope the government would have taken this step in tandem with the introduction of the Goods and Service Tax (GST).”
However, the good thing is that, products from all over the country will be now be included under a single Goods and Service Tax umbrella, which will bring uniformity and consistency across all locations.
Brijesh Agrawal, co-founder, IndiaMart, said, “GST implementation will ensure single marketplace which will break tax barriers between States, bringing in a uniform tax rate across the country. Overall benefits received by the sector would be sufficient to offset the rise in service tax clause,”
An Amazon India official said, “We are very encouraged by the commitment to implement GST by April 2016. We believe both are key to ease of doing business by enabling and streamlining the movement of goods and services,”
Except for income from loans and advances, banks are liable to charge service tax on all banking services like ATM processing, maintenance of bank accounts, money transfer etc. Due to the increase in service tax to 14%, there will be marginal increase in the service tax levied by your bank.
Arundhati Bhattacharya, chairman of State Bank of India, said, “The cost of banking services like ATM debit and credit card transactions is going up but it is difficult to quantify how much will be passed on to the customer.”
There are unconfirmed reports emerging, according to which Govt. will introduce some special tax saving provisions for all transactions done by RuPay debit card. We will update you as more details are received.
All foreign exchange firms are liable to pay service tax on all transactions, which will be now increased. Right now, on an average, a typical forex firm charges service tax of 0.12% for transactions upto Rs 1 lakh, with Rs 30 as maximum charge. This will now increase to 0.14% with Rs 35 as maximum charge.
For amounts between Rs 1 lakh to Rs 10 lakh, there would be a charge of Rs 140 + 0.07% of the money exchanged; and more Rs 10 lakh and more, the service tax would be now Rs 770 + 0.014% of the money exchange, with maximum charge of Rs 7000.
Earlier, distributors or agents of mutual funds were exempted from paying service tax, which has been withdrawn from the current financial year. Hence, all agents of mutual funds will have to pay service tax for all transactions, which will be levied by the asset management company (AMC). Srikanth Meenakshi, founder of Fundsindia said that for every Rs 100 commission earned by an agent, Rs 14 will be deducted as service tax charges by the AMC.
Your health insurance, life insurance and all associated premiums are already charged a service tax; which means that the hike will directly affect your annual/monthly spends. However, not every type of insurance would be affected, and in some cases, the shock would be distributed across installments and annual fees.
Kapil Mehta, managing director of SecureNow Insurance Broker Pvt. Ltd. said, “..You will see a direct increase in the cost for premium that you pay for your health and life insurance. However, the impact will be marginal,”
The travel industry, which is already reeling under severe losses were expecting some major tax benefit and subsidies to boost the sector. But unfortunately, there were no new announcements besides the increase in service tax, and this means that travels will be now more expensive. Right from airport usage charges to food items sold in-flight would now be more expensive, along with the ticket prices.
Along with these, ordering food at restaurants, services availed at beauty parlor, spas, hotel, online payment of bills, online wallets will be charged additional service tax.
Do share your views about this increase in service tax and the new Swatch Bharat cess, and how it will affect your home budget, by commenting right here.