What is the new Service Tax Rate?

This year, our Hon’ble Finance Minister, Shri Arun Jaitley notified about the increase in service tax by 0.5% during his budget speech on 29th February 2016. In addition to 14% Service Tax and 0.5% Swachh Bharat Cess, there will be an additional Cess of 0.5% known as Krishi Kalyan Cess. This means that the new rate of service tax shall be 15%. The proceeds from the new Cess shall be directed towards promoting agricultural activities. However, following points are to be kept in mind regarding the same-

1. The new rate of Service Tax shall be applicable from 1st June 2016. This means the taxpayers of assessment year 2015-16 shall be subjected to the old rate of 14.5%, which includes the Swachh Bharat Cess of 0.5%.

2. Theoretically, it is not an increase the Service Tax itself, but an addition cess of 0.5% has been implemented. This cess is known as Krishi Kalyan Cess.

3. In the assessment year 2016-17, services provided till 31st May, 2016 shall be chargeable at 14.5% and from 1st June, 2016 the service tax shall be calculated at the rate of 15%.

4. If a service is provided before 1st June, 2016 but the Invoice is raised and payment is made after 1st June, 2016, then Krishi Kalyan Cess shall be applicable.

5. If a service is provided before 1st June, 2016 and either the Invoice is raised or payment is made before 1st June, 2016, then Krishi Kalyan Cess shall not be applicable. The official notification regarding the same can be found here.

6. It is also to be noted in regard to points 5 and 6 that the invoice of services provided must be raised within 14 days to claim exemption of Krishi Kalyan Cess. If an invoice has been raised after 14 days of services provided, the Service Tax shall be applicable at the rate of 15%.

7. Service Tax is applicable only on service providers whose aggregate value of turnover is above Rupees 10 Lakh in a single financial year. The meaning of aggregate value of turnover is prescribed under Section 67.

8. Further, if the value of turnover exceeds Rupees 9 lakh, the service provider must apply for Registration of Service Tax within 30 days of such exceeding.

9. Service Tax in general is applicable on all the services except those in the negative list of the government. Further exemptions from Service Tax are negatively notified by CBEC from time to time. All official notifications regarding service tax can be foundhere.

10. Service Tax is applicable to whole of India except the State of Jammu and Kashmir.

The increment was necessary for the economy since the agricultural sector has been going through the years of bad harvest. The contingencies compelled the government to make provision for the same. Hopefully, there shall be some of our money that we pay for our meals at luxurious hotels, which will certainly go to people behind those meals, that’s our farmers. In my opinion, the implementation date could have been 1st of July, 2016, that is the second quarter, since Service Tax is payable quarterly.

Author: This blog is written by  Ms. Sweta Pochiraju, student of National Law University-Delhi, a passionate blogger & intern at  Aapka Consultant.

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