Services to get costlier with 14% tax from 1 June

Almost all services in the country will get costlier from 1 June with the finance ministry notifying the hike in service tax rate to 14 per cent effective 1 June, against the existing rate of 12.36 per cent, an increase of 1.64 percentage points.

The revised rate of 14 per cent, notified by the finance ministry, however, is inclusive of the 0.3 per cent education cess levied separately at present.

At present the 12.36 per cent service tax includes the basic rate of 12 per cent and an education cess of 0.3 per cent on the basic rate, which adds up to 12.36 per cent.

Under the expanded list, service tax is now levied on all services except the few in the negative list.

Service tax, however, is not levied on the entire cost for all services as over half the services that attract service tax also have abatement, which means that the tax will be levied only on a portion of the total value.

There is no change in the abatement rules, which means the effective rate of tax will go up even as the percentage of value to be taxed remain unchanged.

For example, air-conditioned restaurants have to add 40 per cent tax on customers' bills, which currently works out to 4.94 per cent on a Rs100 bill, after abatements. This tax rate will go up to 5.6 per cent from 1 June since there is no change in abatement rules.