The Goods and Services Tax (GST) Council on Friday finalised tax rates for all services, except lottery, under the new indirect tax regime to be rolled out from July 1. Those services already exempted from tax, such as healthcare and education, will continue to enjoy the concession.
The tax rate on non-AC restaurants will be 12%. It will be 18% on AC restaurants and those with a liquor licence. Restaurants in 5-star hotels will attract a 28% tax, the same as that applicable to these hotels itself. A tax of 18% will be levied for financial services and mobile services. While hotels and lodges with tariff below ₹1,000 have been exempted, those with room tariff of ₹1,000-₹2,500 will attract 12%, those charging ₹2,500-₹5,000 will come under the 18% tax bracket, and those charging any rate above that will be taxed at 28%.
“Even in the services sector, depending on the nature of service… there are various categorisations that have been made,” Finance Minister Arun Jaitley said at the end of the two-day meeting of the GST Council.
“There were a set of services that were exempted at present… These exemptions will continue. Besides the exempted category, which include healthcare and education, all other services have been fitted into four different rates of 5%, 12%, the standard rate of 18%, and luxury rate of 28%,” he said.
“The multiplicity of tax rates for services will add complexity to the compliance in the GST regime.”
Mr. Jaitley said transport services have largely been kept under the 5% bracket. Rail transport is to be taxed at 5%, with only non-AC rail travel being exempt. Railway freight services will also be taxed at 5%. Air travel in the economy class will be taxed at 5% while business class will attract 12%. Cab aggregators such as Ola and Uber will also come under the 5% tax bracket.
Five star hotels, gambling, race club betting, and cinemas will attract a 28% tax rate.
“For consumers, there is no area where tax will get increased,” Mr. Jaitley stressed.
On bringing cinemas under the 28% tax slab, Revenue Secretary Hasmukh Adhia said the tickets may or may not become cheaper. He explained that State governments have the authority to create a separate law to charge tax in addition to 28% for funding local bodies. So, most States might choose to use this option to keep the taxes on movie tickets at current levels.
If companies do not pass on the benefit of a lower rate of tax to the consumer, then the government will initiate the anti-profiteering clause against them, Mr. Adhia added.
He also warned that whenever machinery is set up and the government receives a petition pointing out an increase in prices by companies in anticipation of GST, the companies will come under scrutiny and called for questioning. The government could also initiate action suo motu , he said.
Mr. Adhia, however, appealed to the industry to be honest and charge customers only the actual tax rate and not mislead them by saying that they need to charge more service tax as government had increased the rates.
Mr. Jaitley said: “Most of the work related to rollout of GST has been completed. Only a few things remain. In goods category, six categories are still to be decided… The residuary rules will be put up for public comments and they need to be approved. We will also be looking at the presentation of the state of preparedness of the GSTN.”
The Council will now meet on June 3 in New Delhi for its 15th meeting. “Hopefully these decisions will be taken on June 3 itself,” the Finance Minister said.