There is a certain worry among service providers & receiver of services with new Service Tax (ST) rate. Service providers feel they will have to charge higher service tax and on the other hand receiver is worried that they will have to pay more by way of ST. All these chaos came just after Finance Minister Arun Jaitley announced proposed changes in the services tax structure in Budget 2015. Presently service tax is charged at a rate of 12% plus Education Cess @2% & Secondary & Higher Education Cess @1% making a net of 12.36%. The proposed rate will be now 14% all inclusive.
Most of us have already conceived that new enhanced rate of service tax going to be effective from April 1, 2015. But the fact is, the proposed service tax rate will not become effective from April 1, 2015. It shall come into effect from a date to be appointed by the Central Government, by way of notification in the Official Gazette, after the enactment of the Finance Bill, 2015. The proposed amendments vide
Clause 106 of the Finance Bill, 2015 is quoted as below;
106. In section 66B of the 1994 Act, with effect from such date as the Central Government may, by notification in the Official Gazette, appoint, for the words “twelve per cent.”, the words “fourteen percent.” shall be substituted.
Further, the Tax Research Unit of CBEC has issued instructions vide F. No. 334/5/2015-TRU dated February 28, 2015 and clarified at para 3.3 & 3.4 as quoted below:-
3.3 The new Service Tax rate shall come into effect from a date to be notified by the Central Government after the enactment of the Finance Bill, 2015.
3.4 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.
Further it has also been clarified that, no cess has been included in proposed 14% of ST. The 14% rate has been proposed by substituting 12% in the charging section 66B of the Finance Act, 1994 and being statutory rate, it can’t include any other tax/cess within.
Conclusion: The new service tax rate cannot come into force before the Finance Bill, 2015 get assent from the President of India, after which the government will notify the effective date. So do not pay or charge higher Service Tax until a notification is released.