The new service tax regime has become effective from June 1, making services like railways, airlines, banking, insurance, advertising, architecture, construction, credit cards, event management and tour operators’ costlier as they will attract higher tax. Finance Minister Arun Jaitley in his Budget had proposed to raise service tax from 12.36 % (including education cess) to 14%.
The Finance Minister had proposed to raise the service tax rate to 14 % to facilitate a smooth transition to the Goods and Services Tax (GST) regime, which the government wants to roll out from April 2016, as once implemented, GST will subsume service tax, excise and other local levies. Education cess, which is levied on service tax, will be subsumed in the service tax rate with effect from 1 June.
Fares for first class and AC classes in passenger trains, besides freight charges, will go up by 0.5% from 1 June. Currently, 3.7% service tax is levied on train fares for AC class, first class and freight. This will go up to 4.2% from June 1. Currently, there is abatement of 70% on passenger services. Although the Union Budget proposed a 2% Swachh Bharat cess on selected services, the government is yet to come out with a notification in this regard.