The economy of India is a developing mixed economy. Indian economy is basically divided into three sectors such as primary, secondary and tertiary sector. It is the world fifth largest economy in the world. Over the course of the last decades, India has showcased a robust and resilient growth history driven by perseverance, ingenuity and vision. In line with the global trend, the service sector in India is growing rapidly. Tertiary sector is also known as service sector which is involved in the production and exchange of services such as insurance, banking, renewal energy, financial services, education, health care, media, tourism, legal services , IT and technology ,risk management and advisory functions etc. India has emerged as a service led economy. Service sector which have become a vital source of driving India’s economic growth, contributing to more than 55 percent of its national income and it is a major source of employment, provides jobs to 30.7 percent of the Indian population. The service sector is a key driver of India’s economy. Service sector has emerged as the largest and the fastest growing sector of India, the growth in output of service sector has been higher than that of agriculture and manufacturing sector. But inspites of these  some of the key challenges faced by service sector in India such as increasing role of artificial intelligence, online fraud, lack of workers with relevant digital skill, uncertain global economic trend, infrastructure constraints ,data privacy, data security and technological disruptions etc. In the present study an attempt has been made to study blooming trends of service sector with special reference to analysis its impact on Indian economy and also highlights and identify key challenges faced by service sector due to changing national and international business scenario.  In the context of challenges faced by service sector, suggest some strategies to overcome these challenges for improving contribution of service sector in economic growth.