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Household budget: Cars, branded clothes, air travel to cost more

March 01, 2016

Cess introduced on several goods, services to add to tax revenue kitty

Planning to buy a car, jewellery or branded clothes? Do it now. From April 1, the prices of these goods might see an increase.

Similarly, aerated drinks, mineral water, travel packages, coaching classes and beauty parlour services might also cost more, as the Budget has proposed increasing service tax and cess on such items.
Read our full coverage on Union Budget 2016

"There is an estimated net rise in tax revenue by almost Rs 20,000 crore," said Rajeev Dimri, leader-indirect tax, BMR & Associates LLP. "This will come from the multiple cesses and will add to the cost of transaction for consumers."

A new cess called the Krishi Kalyan Cess (KKC) has been introduced on all taxable services at 0.5 per cent. This will effectively increase the service tax rate to 15 per cent. "But, this is not uniform and one has to see what the exemptions are," said M S Mani, senior director, Deloitte in India.

For instance, in case of tour operators, the abatement on service tax was either 60 per cent or 75 per cent, which has now been rationalised at 70 per cent. So the rates might go up in some cases and come down in others.

Similarly, the abatement on service tax in case of residential units under construction has been rationalised at 70 per cent. Earlier it was 75 per cent for houses with carpet area of more than 2,000 sq ft or costing more than Rs 1 crore. It was 70 per cent for houses less than 2,000 sq ft or less than Rs 1 crore.

The government also seems to be pushing for greener cars. An infrastructure cess of one to four per cent has been introduced on cars. A one per cent levy has been proposed on petrol, CNG, LPG vehicles not exceeding four metres and engine capacity not exceeding 1,200 cc. Diesel vehicles not exceeding four metres and with engine capacity of not more than 1,500 cc would see a levy of 2.5 per cent. Vehicles with larger engines, SUVs and bigger sedans would see a four per cent levy.

Be prepared to spent more on your next shopping if you prefer branded clothes. The Budget has proposed a minimum two per cent excise duty on branded readymade garments costing above Rs 1,000.

If you are planning a holiday, air tickets are going to pinch your budget. Excise on aviation turbine fuel has been increased from eight to 14 per cent, making flying costlier. Similarly, mineral water or soft drinks would also cost more as the excise duty on these have being increased from 18 to 21 per cent.

Make sure that you don't pay cash while buying jewellery or a luxury handbag, or else your transaction will attract a one per cent tax collected at source - proposed on luxury goods or services that cost more than Rs 2 lakh.
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