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GST Council finalises rates for services

Says exemption for healthcare, education to continue

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 Rs. 1,000 have been exempted, those with room tariff of Rs. 1,000-Rs. 2,500 will attract 12%, those charging Rs. 2,500-Rs. 5,000 will come under the 18% tax bracket, and those charging any rate above that will be taxed at 28%.

Services categorised

“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.

“Having multiple rate slabs on services comes as a surprise to the industry, particularly the introduction of the 28% slab, which was not envisaged earlier,” Pratik Jain, partner and leader-indirect tax, PwC said.

“The proposed tax structure on services is much more complex than we have at present. For hotels, restaurants and transportation, a distinction has been made on the basis of room tariff, turnover of business and so on,” Mr. Jain pointed out.

“This is not in line with international practice, where a uniform rate is applied on a particular service irrespective of value or status of the business,” he said.

“Levying GST at the demerit rate of 28% for 5-star hotels could be a dampener for tourism, especially in cases of business travel in a State where the recipient does not have registration,” Sachin Menon, national head, Indirect Tax, KPMG in India, said.

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