Service tax @14%: Know how it will affect your wallet

The service tax rise proposal takes effect on June 1, 2015. Here is all you need to know in 10 points:

service tax evasion
The broadening of the credit system for taxes incurred on input services and the move to reduce the accumulation of CENVAT credit with manufacturing firms go in the direction of the proposed goods and services tax (GST).

As the service tax rise proposal takes effect (1st June, 2015), Benjamin Franklin’s words ring true once again – “In this world nothing can be said to be certain, except death and taxes.” Here is all you need to know in 10 points:

#1. Taxman at the gate (and most everywhere else)
The rise in service tax which was proposed earlier in the Union Budget has taken effect from this month. Service tax which was 12.36% earlier has risen to 14%. This means key services used by us regularly have got costlier.

#2. Do not call to tell your friends about this!
Stay warned because this rise in service tax is going to show up in your mobile phone bill. Considering an average monthly mobile bill of Rs 1,000. Earlier after applying the service tax the bill would turn out to be approx. Rs 1,124. However after the increase in percentage, the bill now would be Rs 1,140. A good reason to ditch the phone and instead meet your friends!

#3. Let’s cook at home honey!
Yes, you will find yourself saying this more often. Polish your culinary skills because eating out just got expensive. A meal for two in a fancy restaurant, over the weekend costs not less than Rs 1,500 approximately. For two such outings in a month, the expense would amount to Rs 3,000. Adding on the previous service tax, the total amount would be Rs 3,371. The same indulgence will now cost you Rs 3,420. Surly, your wallet and your spouse, both are going to love it when you whip up a fancy meal at home!

#4. Couriers become expensive!
Every courier bill carries a service tax. With service tax raised to 14%, couriers will now be more expensive than before. Though it may not impact your pocket significantly since couriers are sent once in a while by individuals. But this will definitely impact offices wherein couriers are sent out in volume. The rise in service tax will be responsible for a significant increase in expenses there.

#5. Stop! Read this before you swipe that card!
Expenses on the credit card are subject to service tax which is levied on the total value of the transaction. As far as possible, swipe your credit card for only those payments where any service fee or processing fee is not applicable. Service tax is applicable on the interest charged on credit cards since it is a service provided by the bank to the card holder. Now, you know how bad plastic money can hurt your pocket. Tread carefully all card holders.

#6. Set aside more money for Insurance premiums   
With service taxes being increased to 14%, it is directly going to impact the premium amount you pay for insurance. So, do the math and workout the revised premium amount. That way you can plan ahead and set aside or save for the premium accordingly.

#7. Online shopping spree will now cost you more!
Service tax of 14% is applicable to all ecommerce portals. Ecommerce goods and shipping will attract this service tax and hence will turn out to be expensive. This will also include service providers who connect potential buyers and sellers online. To name a few services, it would include Flipkart, Zomato, Olx, Snapdeal et al.

#8. Service tax adds to travel woes!
Air and Indian Railways tickets will be impacted by the service tax increase. This basically means travelling will become more expensive. The airline industry is already struggling to keep up and the competition is intense. And this additional increase in the total travel cost is not going to help the situation. All the prices will shoot up which include in flight food, airport usage charges, etc.

#9. Banking is one expensive business
Service tax is applicable on services provided by banks like maintenance of bank accounts, ATM processing charges, loan processing charges, money transfer charges, etc. Due to the increase in service tax to 14%, there will be an increase in the service tax levied by your bank. Though the increase may seem marginal if we look at it transaction wise, the total increase on tax applicable throughout the year on banking services availed will be substantial. Every penny earns interest and therefore it matters!

#10. The GST angle
While the increase in service tax to 14% is a part of the larger plan, wherein GST will be rolled out in 2016, there is no denying that all of us will be feeling the pinch now on. Though the increase is a small percentage, the point to be noted is that service tax is applicable on almost all the services availed by us on a daily basis. The sum of all the pennies added to every service we avail will be an amount which will make your wallet lighter.

By CreditVidya

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First published on: 10-06-2015 at 12:33 IST