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India Increases Service Tax Rate

By Dezan Shira & Associates
Posted: 12th April 2012 10:21

Service tax is the tax charged on services offered, which has to be collected from the clients and paid to the government. If these taxes increase, there is an increase in many expenses such as mobile bills, insurance premiums, professional consultations, property purchases from the builder, courier expenses, and credit card bills. There are almost 125 services on which service tax is levied.

In the Annual Budget for 2012-13, the Finance Minister has proposed to increase service tax to 12 percent from the previous rate of 10 percent. The new rate came into effect from April 1, 2012.

The increase in taxes has made most services – including eating out, traveling, phone calls, coaching classes, advertisements, health clubs, dry cleaning, beauty parlors and life insurance – more costly.

The government aims to get an additional revenue of Rs. 18600 crore through the 2 percent raise in service tax.

Meanwhile, increases in other indirect taxes like customs, excise and import duties will also affect household budgets.

Service tax is proposed to be charged on passenger travel by rail in first class or air-conditioned coach with or without unaccompanied goods on a value equal to 30 percent of fare.

In addition to the proposed rise in first class and air-conditioned coach fares by the Railway Budget, a service tax of 3.7 percent will apply. Thus, a 3-tier AC ticket in Rajdhani Express from Mumbai to Delhi costing Rs. 1,470 will now cost Rs. 1,525.


Dezan Shira & Associates is a specialist foreign direct investment practice, providing business advisory, tax, accounting, payroll and due diligence services to multinationals investing in China, Hong Kong, India, Singapore, and Vietnam. Established in 1992, the firm is a leading regional practice in Asia with twenty offices in five jurisdictions, employing over 180 business advisory and tax professionals. For professional advices in taxes structure in India, please contact Dezan Shira & Associates at or visit

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