Pay more to buy a car, for dining, travel and more

Even though the widely expected increase in service tax didn’t happen, there will be a new cess that would get added to your service tax. In the Union budget 2016-17, the finance minister announced the Krishi Kalyan cess of 0.5% applicable on all taxable services. The proceeds of this cess would be exclusively used for financing initiatives relating to improvement of agriculture and welfare of farmers. The cess will come into force from 1 June 2016. Since this cess is applicable on all taxable services, the service tax would essentially get enhanced to 15%. Last year, the service tax was increased from 12.36% to 14.5% (including a Swachh Bharat cess of 0.5%). Now, it would be 14.5% + 0.5% of Krishi Kalyan cess, which would add up to 15%.This could mean you might need to pay more on your mobile phone bills, restaurant bills, while buying property, insurance, and for air travel, apart from a host of other services that you avail every day.

There is more to worry about if you are going for a new car. The minister announced an infrastructure cess to be levied on cars. The cess would be 1% on small cars running on petrol, LPG and CNG, while it would be 2.5% for diesel cars of certain capacity. For other higher engine capacity vehicles and sport utility vehicles (SUVs), this figure would be 4%.

Cars costing above 10 lakh and buying goods and services in cash of more than 2 lakh would be charged another 1% tax at source.