RATE AND CESS ON SERVICE TAX-BUDGET IMPACT

The charge of
Service Tax under the Finance Act, 1994 as amended so far is at the rate of 12
percent on the value of taxable services. This rate of Service Tax is specified
in section 66B of the Finance Act.

Presently the rate of 12 percent Service Tax is further subject to levy
of education cesses as follows:
Education Cess
(EC) 2%
Secondary and
Higher Education Cess (SHEC) 1%
These education
cesses of 2% and 1% are in addition to Service Tax of 12% and are charged on
Service Tax i.e, 2% and 1% on amount of Service Tax and not on the value of
services on which service tax is levied. Thus, effective levy of Service Tax
for the service provider or service receiver becomes 12.36 percent (12% Service
Tax, 2% on Service Tax as education cess and 1% on Service Tax as SHE cess).
  
These cesses
are special purpose cesses which are appropriated by the Union for the purpose
of promoting education and secondary and higher education and related purposes.
BUDGET 2015-16
The Union
Budget speech in para 121 states as follows –
“Introduction
of GST 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 cesses from
12.36% to a consolidated rate of 14%”.
Not only this,
in case of excise duty also, it has been said in para 118 as follows –
“As part
of the movement towards GST, I propose to subsume the Education Cess and the
Secondary and Higher Education Cess in Central Excise duty. In effect, the
general rate of Central Excise Duty of 12.36% including the cesses is being
rounded off to 12.5%”.
It is
therefore, proposed that both the education cesses i.e., EC and SHE cess will
get subsumed into the duty or tax and that the new rate shall be deemed to have
factored education cesses in terms of rate or amount but education cesses will
no longer be levied separately. The Government will get the amount, in fact even
higher amounts as tax or duty itself and not in the form of cesses. Thus,
cesses will no longer be levied but assessees will end up paying a higher rate
and amount of duty or tax. This is evident from following table.
Tax / Duty
Present
Position
As per
Finance Bill, 2015
Net increase
Tax
EC and SHE
Cess
Total
Tax
EC and SHE
Cess
Total
Service Tax
12%
0.36%
12.36%
14%
14%
2.68%
Excise Duty
(General Rate)
12%
0.36%
12.36%
12.50%
12.50%
0.14%
Specific rates
of central excise duty in other items and commodities have also been revised.
However, in case of petrol and diesel, such specific rates are revised only to
the extent of subsuming the quantum of education cess presently levied on them,
keeping the total incidence of excise duties unchanged.
FINANCE BILL, 2015
Clause 106 of
the Finance Bill, 2015 seeks to amend section 66B so as to increase the Service
Tax from 12 to 14 percent. Further, Clauses 179 and 187 respectively of the
Finance Bill, 2015 provide that –
i). Section 95
of the Finance Act, 2004 levying education cess, and
ii). Section
140 of the Finance Act, 2007 levying SHE cess
Shall cease to
have effect from a notified date after enactment of Finance Act, 2015.
  
EFFECTIVE DATE
New Rate of
Service Tax and cessation of both education cesses shall be applicable only
after enactment of Finance Act, 2015 (i.e. on President’s assent) and upon
notification of an effective date. Till the time the revised rate comes into
effect, the ‘education cess’ and ‘secondary and higher education cess’ will continue
to be levied in Service Tax.
EDUCATION CESS ON OTHER TAXES
Levy of both
education cesses will continue to be levied on income tax and customs as these
have not been subsumed in tax rates.
NEW CESS
It is also
proposed to levy a new cess in the name of Swachh Bharat Cess (SBC) at a rate
of 2% on all or any taxable services. The resources generated from this cess
will be utilized for financing and promoting initiatives towards clean India
(Swachh Bharat). For this purpose, provisions are contained in Chapter VI
(Clause 117) of the Finance Bill, 2015. It shall be levied as Service Tax for
the purpose of the Union for financing and promoting “Swachh Bharat”
initiatives and any other purpose relating thereto.

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