Service tax changes

It is a turbulent atmosphere. India will see her first budget post 2016-demonetization and guess what? That’s not the only thing that is going to make this budget so interesting! There are several other aspects which is giving birth to this turbulent atmosphere we are in. To top everything, news of parliament’s sitting MP’s death has stirred up the situation even more. The likelihood of budget presentation getting delayed is extremely likely.

In case you are wondering why the Union Budget 2017-2018 is going to be so important, here are a few quickies for you:

  • Merging Railway budget with national budget will break 92-year old practice. Yes! That’s going to happen in this budget.
  • Budget presentation previously took place only on last day of February – an Imperial practice that is going to get killed.
  • Introduction of GST is due on July 1, 2017 – Budget 2017-2018 will see a host of changes in service tax regime. Experts and analysts have split views in this.
  • Budget will be targeted towards achieving economic normalcy as growth rate was shaved off after demonetization of November, 2016.

Talking of GST and service tax – a price hike may be eminent

GST bill that was passed last year proposed a complete overhaul of the tax regime prevalent in India. With the motive of subsuming VAT, service tax, excise duty and various other cess-es at central and state levels, GST came up with a proposal of different slabs for taxation which are:

  • 5%
  • 12%
  • 18%
  • 28%

With GST roll out to happen in July, 2017, experts and analysts are thinking that the Union Budget of 2017-2018 will see a hike in service tax to the level of 16% to 18%. This, according to them, is a logical move by finance ministry as the service tax will come close to one of GST tax slabs.

service tax

As we said, there are split views and opinions. There are experts who think that service tax rates will experience a dichotomy. Those who think of a possible split say that:

  • Basic services will experience a fall in service tax and the possible rate will be 12%
  • All other services will experience a hike in service tax and the possible rate will be 18%

Hike in service tax will lead to price hike for various services. This means that eating out, flying and even phone bills may become a tad expensive post budget.

Benefits of introducing higher rates of service tax?

Higher service tax rates are pretty evident but how is that going to help? Honestly, paying higher for services is not something anyone will like but there are several benefits of this. Here are two of those benefits as mentioned by experts:

  • Adjustment to price shock: GST application will anyway give a price shock to citizens on India. With service Tax increased ahead of GST roll out, people will have the chance of adjusting to the price shock that will come with GST.
  • Government revenue to increase: Yes, a hike in service tax will lead to increase in government revenue. This will help the government to carry on with all schemes that the government announced. On top of that government spending can increase in various sectors and help to boost GDP, whose growth rate was shaved off after demonetization on November 8, 2016. Service tax hike can help to regain normalcy in economic growth.

Previous changes in service tax

This won’t be the only instance of service tax hike. The table below will give a quick view of previous changes introduced by Arun Jaitley:

Date / Year / Budget Previous Rate New Rate
June 1, 2015 12.36 % 14 %
November 15, 2015 14 % 14.5 %
Union Budget: 2016-2017 14.5 % 15 %


So, if service tax increases in this budget, it will be the 4th increase in 2 years.

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