Articles Clarifies Doubts Regarding Applicability of Revised Rate of Service Tax of 14% and Applicability of Swachh Bharat Cess, Educational Cess and SHE Cess on the New Service Tax Rate of 14%. Articles also clear the doubts regarding 16% Service Tax Rate after applicability of Swachh Bharat Cess on Taxable Services.

Amid huge expectations and challenges facing the economy, the Hon’ble Finance Minister Shri Arun Jaitley has presented his 1st Full-year Union Budget for the year 2015-16 on 28th February, 2015. In his Budget Speech, he has proposed to increase the effective rate of service tax from 12.36% to 14%. This proposal has created doubts in the minds of some assessee’s and professionals as well. The objective of this article is to identify various issues/queries relating to proposed rate of service tax and try to clarify the same in simple language. To begin with, I quote the relevant Clause 121 of the Budget Speech as below:-

121. Introduction of 6ST is eagerly awaited by Trade and Industry. To facilitate a smooth transition to levy of tax on services by both the Centre and the States, it is proposed to increase the present rate of service tax plus education cess from 12.36% to a consolidated rate of 14%.”

1. Do I have to charge new rate of service tax from 01-03-2015 onwards like we do in case of changes in rates of central excise?

No, you don’t have to charge new rate of service tax from 01-03-2015 onwards as the new rate has not yet come into effect. Till then, the existing rate of 12% (service tax) + 2% (Education Cess on tax) + 1% (SHE Cess on tax) i.e. effective rate of 12.36% shall continue.

2. Whether the new enhanced rate of service tax going to be effective from 1st April, 2015?

No, the proposed service tax rate will not become effective from 01-04-2015. Many service providers and receivers are having the misconception that any change in rate of service tax takes effect from 1st April of the year. It shall come into effect from a date to be appointed by the Central Government, by way of notification in the Official Gazette, AFTER the enactment of the Finance Bill, 2015. The proposed amendments vide Clause 106 of the Finance Bill, 2015 is quoted as below:-

“106. In section 66B of the 1994 Act, with effect from such date as the Central 6overnment may, by notification in the Official 6azette, appoint, for the words “twelve per cent.”, the words fourteen per cent.”shall be substituted.”

Further, the Tax Research Unit of CBEC has issued instructions vide F. No. 334/5/2015 TRU dated 28-02-2015 and clarified at para 3.3 as quoted below:-

3.3 The new Service Tax rate shall come into effect from a date to be notified by the Central 6overnment after the enactment of the Finance Bill, 2015.”

It means, that the new service tax rate cannot come into force before the Finance Bill, 2015 get assent from the President of India, after which the government will notify the effective date.

3. The Finance Minister’s Budget Speech clearly state that it is proposed to increase the present rate of service tax plus education cesses from 12.36% to a consolidated rate of 14% (as quoted above).  Does it mean that once enacted, there won’t be any requirement of charging additional Education Cess of 2% and Secondary Higher Education Cess of 1% over service tax of 14%?

Yes, once the new rate is effective, there won’t be any requirement of charging 3% education cesses on the service tax.

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4. Does it mean that the consolidated rate of 14% is inclusive of education cesses? In other words, the tax break-up is 13.59% (service tax) + 0.27% (Education Cess @2%) + 0.14% (SHE Cess @1%) aggregating to 14%?

No, there is no break-up of 14% tax rate which entirely constitute of service tax. The 14% rate has been proposed by substituting 12% in the charging section 66B of the Finance Act, 1994 and being statutory rate, it can~t include any other tax/cess within.

As mentioned in para 3 above, there won~t be any requirement of charging Primary Education Cess of 2% and Secondary Higher Education Cess of 1% on the service tax of 14% because it has been provided vide clauses 179 and 187 respectively of the Finance Bill, 2015 that sections 95 of the Finance Act, 2004 and 140 of the Finance Act, 2007, levying Education Cess and Secondary and Higher Education Cess on taxable services shall cease to have effect from a date to be notified by the Government.

5. Ok, now it’s clear that 14% is the FINAL effective rate of service tax from the date to be notified by the Central Government?

Yes, subject to Swachh Bharat Cess (SBC) of 2%!!

6. What is Swachh Bharat Cess (SBC) and how is that related to service tax?

An enabling provision is being incorporated in the Finance Bill, 2015 (Chapter VI/clause 117) to empower the Central Government to impose a Swachh Bharat Cess on ALL or ANY of the taxable services at a rate of 2% on the value of such taxable services. This cess shall be levied from such date as may be notified by the Central Government after the enactment of the Finance Bill, 2015. The details of coverage of this Cess would be notified in due course.

7. 0MG!!! It means that the levy of education cesses has been removed and replaced by 2% cess on service tax to be named as Swachh Bharat Cess making the effective rate of service tax at 16%?

No, it is wrong to say that the levy of education cesses has been removed and replaced by SBC @ 2% on service tax. I quote below the proposed levy of SBC vide Clause 117(2) of Bill:-

(2) There shall be levied and collected in accordance with the provisions of this Chapter, a cess to be called the Swachh Bharat Cess, as service tax on all or any of the taxable services at the rate of two per cent on the value of such services for the purposes of financing and promoting Swachh Bharat initiatives or for any other purpose relating thereto.”

The new provision clearly says that the new levy of SBC shall be as service tax @ 2% on the VALUE of such services. So, unlike education cesses, which were levied not on value of services but on service tax thereon, SBC is not a tax on service tax. A cess should not be confused with surcharge which is always a tax on tax.

In the Indian context, the Hon’ble Supreme Court, in a ruling in Shinde Brothers Vs. Commissioner, Raichur reported in 1967, said that “the word cess means a tax and is generally used when the levy is for some special administrative expense” citing various examples suggesting the name of the cess explains the object. Thus, cess is a tax which can be collected in any manner but to be utilized only for purposes specified at the time of levy.

Therefore, if the proposed Swachh Bharat Cess is implemented, the Final effective rate of service tax shall be 16% on notified taxable services.

8. Whether SBC will be made applicable on all the services?

The Central Government is empowered to issue a notification after the enactment of the Finance Bill, 2015 to impose the new levy on either all the taxable services or on specified services. If selected services are subjected to the new levy of SBC, the issue of classification of service arise which is expected to generate more disputes, litigations and controversies, as has been seen in the past. The effective date of applicability of SBC shall be notified by the government.

***

Manoj AgarwalAuthor    : Manoj Agarwal

Address  : Ganpati Campus, Lal Building Road, Rourkela – 769012

Contact   : +91-9937041788

E:mail      : ServiceTaxExpert@yahoo.com

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0 responses to “Budget 2015: Clarifications regarding increase in Service Tax Rate”

  1. Parveen says:

    Resp sir,
    what is the effective of service tax 14% on goods tranport agency and also effective date for abatement on this

    please clear

    thanks
    parveen

  2. S.BHASKARA RAO says:

    THANK YOU SIR FOR PROVIDING USEFULL INFORMATION. NOW CAN YOU SAY WHEN THE INCREASED RATE OF TAX 14% COME INTO FORCE. WAHT ABOUT ABATEMENT ON GTA SERVICES. WHEN COME INTO FORCE THE REVISED ABATEMENT ON GTA

  3. G.KARUNAKARAN says:

    dear sir,
    on which date onwards service tax rate 14% is appppilicable

  4. Sanjay Jain says:

    Dear Sir,
    Good Explanation, thank You very much.
    Just want to know the service tax applicable on property? (which was earlier 3.09%)

  5. Pravanjan Kataria says:

    Dear sir
    How new service tax affected to government civil contracor on running works of government college

  6. nagendra kumar says:

    Tq sir for sharing valuable information

  7. nagendra kumar says:

    Thank u sir for sharing valuable information

  8. BABLU AGARWAL says:

    Dear Sir

    Thanks a lot for the information. What will be the rate of servive tax while purchasing property which was previously 3.09% after all abatement.

  9. Rakesh Raushan says:

    Dear Sir,

    Thanks for your valuable information.

  10. P Ravi says:

    thank you sir very conceptual understanding given to me

  11. Rames Singh says:

    Dear Sir,

    A very good Article. Thank you for patients for writing this Article in detail. really I had all the doubt which was highlighted by you.

    Regards,

    Ramesh Singh,

  12. Rajesh G says:

    Dear Sir,

    Very Good clarity. Thank you very much sir,

    Rajesh,Hosur

  13. Uday Raj pal says:

    dear sir ,
    it is really valuable and certain informatin regarding service tax.
    uday raj pal
    allahabad

  14. Uday Ashar says:

    Dear Sir,
    A very well presented with valuable information on Service Tax rate hike @14/16% in your Article and Your article cleared the air of confusion.

    Regards
    Uday Ashar

  15. saurabh says:

    In this case what would be service tax while purchasing property. Earlier it were:
    IFMS and PLC – 12.36%
    Basic price – 3.09%

  16. Upen says:

    Dear Sir,
    Hats off to you SIR !!!!
    SUCH A GREAT ARTICLE WITH SUPERB EXPLANATION. Very well said and explained.
    Thanks once again…
    – See more at: https://taxguru.in/service-tax/budget-2015-clarifications-increase-service-tax-rate.html#comment-1619327

  17. Upen says:

    Dear Mr Agrwal

    Good article And very well explained,

    once again thanks Alot

    Regards
    Upen

  18. Nagesh S says:

    Hi Sir,
    It is valuable and easy to use thanks for the explanation ….

  19. M.J.Dave says:

    Dear Mr. Agarwal,
    Well written, one article for all quarries.

  20. AMARJEET says:

    From which date the new service tax @14% shall be applicable.
    .36% Cess is no more effective/ abolished?
    Does the 14% S Tax also includes SBC or it has to be charged on and above 14%?
    Please clarify.

  21. Iceman says:

    Good article..

    My query is what is the effective date compared against ? Date of generation of bill for the service or date of payment ? So for eg if a bill is raised today and I pay it after the rate effective date , what will be the ST charged to me – 12.36% or 14 % ?

  22. Manohar Reddy says:

    Dear Manoj

    Thanks for sharing valuable information with detailed analysis

  23. MANI THAKUR says:

    THANKS FOR THE CLARIFICATION.

  24. Suresh Verma says:

    Dear Sir,

    Thanking you for clear my confusion.

  25. Ranga says:

    Good clarity. Thanks.

  26. Sandeep says:

    Dear Sir,

    Your article cleared the air of confusion.

    Thanks,
    Sandeep

  27. Sunil Bhageria says:

    In case of abatement on what value SBC will be applicable. Say if some one is paying service tax on GTA on reverse charge mechanism.

  28. Sunil says:

    Dear sir, great work.keep it up.

  29. Dinesh Tuteja says:

    Hi,

    Thanks for your information…

  30. Suresh Pokale says:

    Dear Sir,

    A very well presented with valuable information on Service Tax rate hike @14/16% in your Article.

    Regards,
    Suresh Pokale
    Mumbai

  31. CA.Prasad says:

    Dear Manoj,
    Well presented.

    Rgds,
    CA.Prasad

  32. CA Seshadri says:

    well written.Wish similar clarity could be seen in circulars issued by Dept!

  33. Pramod Thakar says:

    Thanks for sharing valuable information with detailed analysis.

    Regards,
    Pramod Thakar Pune

  34. CMA Utpal K Saha says:

    Good Article manoj ji.
    Regards,
    CMA Utpal K saha

  35. G.Kishore Kumar says:

    Dear Sir,

    A very good Article. Thank you for patients for writing this Article in detail. really I had all the doubt which was highlighted by you.

    Regards,
    G.kishore Kumar
    Hyderabad.

  36. Ero Karthee says:

    Very Clear interpretation. Thank you Sir.

  37. Dharmesh Patel says:

    Dear Manoj Sir,

    Hats off to you SIR !!!!

    SUCH A GREAT ARTICLE WITH SUPERB EXPLANATION. Very well said and explained.

    Thanks once again…

    Dharmesh Patel
    Gondia

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