Mind your hotel bill, service tax rate has gone up to 14%

Beginning today all services, from eating at hotels to buying an insurance cover, will cost more as the government has raised the minimum rate of service tax applicable to 14 per cent from the current level of 12.36 per cent (excluding education cess).

People will also have to shell out more on everything, including mobile phone services, travelling, railways, airlines, banking, insurance, advertising, architecture, construction, credit cards, event management, arranged tours, et al, as the service tax rate goes up to 14 per cent.

Finance minister Arun Jaitley in his budget had proposed raising service tax from 12.36 per cent to 14 per cent (including education cess). The proposal takes effect from 1 June and the tax is levied on all services, except a small negative list.

"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 cesses from 12.36 per cent to a consolidated rate of 14 per cent," Jaitley had said in his budget speech.

The NDA government has also proposed a 2-per cent `Swachh Bharat' cess and it is not known if it will be added to the service tax rate of 14 per cent. As of now, this is inclusive of the education cess, which is levied on service tax.

Rail fares for first class and AC classes in passenger trains, besides freight charges, will go up by 0.5 per cent from today.

This means the current levy of 3.7 per cent service tax on train fares for AC class, first class and freight will go up to 4.2 per cent from today. Currently, there is abatement of 70 per cent on passenger services.

Mobile operators and credit card companies have already started sending messages to subscribers on the increase in service tax rate which will further fatten their bills.

The finance minister's move to raise the service tax rate to 14 per cent is aimed at facilitating a smooth transition to the goods and services tax (GST) regime, which the government wants to roll out from April 2016.

Once implemented, GST will subsume service tax, excise and other local levies.