How Will the New 14% Service Tax Rate Impact Your Daily Expenses Starting June 1?

New Service Tax Rate Implementation

The new service tax rate of 14% will come into effect from 1 June, in a move that will make eating out in restaurants, insurance, and phone bills more expensive, among many other things. The service tax is currently levied at the rate of 12.36%, including education cess. The new rate of 14%, announced by Finance Minister Arun Jaitley in his budget for 2015-16, will come into effect from 1 June.

Services Affected by the New Tax Rate

Service tax is levied on all services, except a small negative list. Advertising, air travel, services of an architect, certain types of constructions, credit cards, event management, and tour operators are some of the important services that attract this tax.

Service tax is applicable on 40% of the bill amount and not the total bill. Calculating 40% of Rs. 14 gives Rs. 5.6.

VAT rates will vary from state to state.

Suppose your bill amount is Rs. 1000, then the service charge (tips) at 10% would be Rs. 100. Service tax at 5.6% amounts to Rs. 61.6, which can be rounded off to Rs. 62. Adding VAT at 12.5% equals Rs. 137.5.

Therefore, the final bill would be Rs. 1299.5, which can be rounded up to Rs. 1300. This amount is 30% higher than the food bill.