Home / Money / Personal-finance /  Ex-cess time: pay more for cars, eating out

Even though the widely expected increase in service tax didn’t happen, there will be a new cess added to your service tax. The finance minister announced a Krishi Kalyan cess of 0.5% applicable on all taxable services.

The proceeds of this cess would be exclusively used for financing initiatives related to improvement of agriculture and welfare of farmers. The cess will come into force from 1 June 2016. “Since there won’t be any input credit available, this will increase the cost of services," said R. Sudarshan, chief operations officer and co-founder, CreditMantri, which provides credit management services.

This additional cess would essentially enhance the service tax to 15%. Last year, the service tax was increased from 12.36% to 14.5% (after including the Swachh Bharat cess of 0.5%). Now, it would be 14.5% plus 0.5% of Krishi Kalyan cess, which would add up to a total of 15%.

“Service tax is levied on a large number of services including mobile phone bills, insurance premiums and even on those services that one avails at restaurants, beauty parlours, and other such places. So, an increase would affect the common man," said Suresh Surana, founder, RSM Astute Consulting Group.

Let’s take an example. If you are spending 10,000 at a restaurant, your service tax earlier would have been around 1,450. After the additional cess that is to be levied from June of this year, the total service tax would increase to about 1,500.

Cars to cost more

There is more to worry about if you are going for a new car. This is because the finance minister announced in his budget speech that an infrastructure cess would be levied on cars. The rate differs depending on size, price and type of fuel used by the vehicle.

The new infrastructure cess would be 1% on small cars running on petrol, LPG and CNG of length not exceeding 4 metres and engine capacity not exceeding 1200cc. For bigger cars—not exceeding 4 metres and engine capacity not exceeding 1500cc—it would be 2.5% for diesel cars. For other higher engine capacity vehicles and sports utility vehicles (SUVs), this figure would be an even higher 4%.

Many vehicles are exempt from this cess. This includes three-wheelers, electrically operated vehicles, hybrid vehicles, hydrogen vehicles based on fuel cell technology, motor vehicles (which after clearance) have been registered for use solely as taxis, cars for physically challenged persons and ambulances.

Cars costing above 10 lakh would be charged another 1% tax at source. “The announcement to deduct tax at source on luxury vehicles worth more than 10 lakh will dampen demand for such cars in the short term. The government could have considered the infrastructure cess (being collected on vehicles) be used for giving subsidies on buying back old vehicles (read Bharat Stage-II and -III compliant) so that they are off the road," said Rajeev Singh, head of automotive sector, KPMG in India.

Also, if you were planning to buy a home theatre system or pay for your foreign tour or maybe buy an expensive gadget using cash, you might want to reconsider because buying goods and services in cash for more than 2 lakh will attract 1% tax at source.

However, for the common man, the impact of the rise in service tax would be much more as opposed to that caused by the infrastructure cess. This is because many services, including banking, courier, stock broking and services offered by health clubs or fitness centres, among others, come under the service tax net.

This essentially means that many of the services that are commonly used are going to get more expensive. So, the next time you go out, take a close look at the bill.

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