Indian Service Tax rises to 14% 1st June 2015

Mon 1st Jun 2015

Indian Service Tax is to increase from 12.36% effective rate to 14% on 1 July 2015. The rise was outlined in the last Indian budget.

The current tax, charged by the Centre, is a levy on a range of services including: telecoms; banking and finance; advertising; consulting; internet access; air travel; intellectual property supplies; restaurants; and hotel accommodation. Imports and exports of services are exempt from the tax. The list of exempt services is specified in a so-called negative list first issued in 2012. This mainly includes government supplies of water etc.

Service Tax is currently 12%, but comes with a 2% surcharge for the education cess on the 12%, making an effective rate of 12.36%. It was first introduced in 1995, and has risen sharply over the years.

The rise is part of a wider plan to raise the take of all indirect taxes to 25% of government revenues. In addition to tax rises, this includes broadening the tax base and a wholesale reform of Indian VAT and Service Tax by their replacement with a new Goods & Services Tax in 2016. This reform is seen as crucial to helping reduce double taxation of excessive bureaucracy that is costing the Indian GDP growth up to 2% per year.