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Economy

You Thought Service Tax Was Hiked to 14%? It Might Be 16%.

Service Tax in Budget 2015 was moved to 14% from the 12.36% we were paying earlier. But there’s a sneaky thing in the budget that allows them to push it up to 16% whenever they want. From the memorandum:

Swachh Bharat Cess:

  • An enabling provision is being made to empower the Central Government to impose a Swachh Bharat Cess on all or any of the taxable services at a rate of 2% of the value of such taxable services with the objective of financing and promoting Swachh Bharat initiatives. This Cess shall be levied from a date to be notified by the Central Government in this regard and will not have immediate effect.

The only thing this is going to clean is your pocket.

Service Tax applies to a lot of things that you can hardly avoid. You have any banking fees of any sort? You pay service tax.

You take a personal loan? Pay service tax on the interest. That 12% personal loan just became something like 13.92%.  Apparently most personal loans don’t charge service tax on the interest, only some credit cards do. So loans are safe, for now.

There’s service tax on insurance premiums (term insurance part).

There’s a service tax component in air tickets, in restaurant bills, and others. All of which will go up.

If you buy services from anywhere, from haircuts to financial planning to chartered accountants to outsourced software from Indian companies, you will find that you have to pay higher and much higher this year. The prices of everything in the service end will go up, but it won’t really be visible in inflation indexes because they don’t consider prices AFTER service tax was applied. So yes, great days on paper indeed.

This budget has been a tremendous exercise in image management. Hats off to whoever has pulled the PR strings, because on any other day, this kind of thing would cause extensive outrage. 16% service tax, beat that!

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