Hike in Service Tax to 14 percent became operational

The decision of the Parliament to increase the rate of service tax from 12.36 to 14 percent became operational on 1 June 2015.

Now, the new tax rate subsumes the education cesses, including the 2 percent Education Cess (EC) and 1 percent Secondary & Higher Education Cess (SHEC), which were earlier levied separately and calculated as consolidated service tax at 12.36 percent.

The decision to increase the tax rate by subsuming the education cesses was taken to facilitate smooth transition to the Goods Service Tax (GST) regime which is proposed to be implemented from 1 April 2016. Once implemented, GST will subsume service tax, excise and other indirect taxes.

Earlier, the Union Finance Minister Arun Jaitley proposed for the hike in his 2015-16 budget speech on 28 February 2015 which was subsequently approved by the Lok Sabha in the form of the Finance bill, 2015 on 30 April 2015 and the President of India on 14 May 2015.

About Service Tax

Service tax is an indirect tax levied by the government on service providers on all service transactions such as education, insurance, transportation, communication, hospitality, etc.  However,  few services mentioned in the negative list like services relating to agriculture or agricultural produce, education up to higher secondary school, etc. were exempted from the service tax net.

It came into existence under the Finance Act, 1994 as provided by the Article 268A of the Indian Constitution which states that the Service tax is levied by the Union and collected and appropriated by the Union and the States.

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