Swachh cess of 0.5 per cent from November 15

The proceeds from this cess will be exclusively used for PM Narendra Modi’s pet project Swachh Bharat Abhiyan. Significantly, only in June 2015 Modi government had hiked service tax from 12.36 per cent to 14 per cent to bring it in line with proposed GST rate.

“A further increase of 0.5 per cent service tax as Swachh Bharat cess will not only increase the effective service tax rate to 14.5 per cent but also cause the corporates to change their systems again to comply with this levy,” said Bipin Sapra, Tax Partner, EY India.

“Swachh Bharat Cess is not another tax but a step towards involving each and every citizen in making contribution to Swachh Bharat,” said finance ministry. This cess will translate into a tax of 50 paisa only on every one hundred rupees worth of taxable services, it said.

In the General Budget, 2015-16, a provision was made for levying a Swachh Bharat Cess on all or any of the services, for the purposes of financing and promoting Swachh Bharat initiatives.

In addition, implementation of GST will see service tax being increased steeply further. There had been reports that GST rate could be 27 per cent. This had raised concern among experts that it may make products and services expensive. However, Mr Jaitley had said that GST rate will be “much more diluted” than the speculated 27 per cent and the final rate will be worked out by the GST Council.