The new service tax rate of 14 per cent will come into effect from June 1, the government said in a notification issued on Wednesday.
In his Budget statement in February, Finance Minister Arun Jaitley had proposed a hike in effective service tax rate from 12.36 per cent (including cess) to 14 per cent. The new rate subsumes the educational cess and secondary and higher secondary education cess that was levied over and above the tax rate of 12 per cent.
He had also proposed to add a new Swachh Bharat cess to fund the Prime Minister Narendra Modi's ambitious clean Indian campaign. The government is yet to notify a date by when this cess would be applicable.
Swachh Bharat cess is expected to be levied at a rate of 2 per cent thereby taking the effective service tax rate to 16 per cent. The increase in service tax would be applicable for all services expect for a negative list. The negative list of services was updated by the government in the Budget to exclude any services provided by the government or local authority to a business entity. The new negative list also included certain items relating to pension schemes.