The council of Goods and Service Tax (GST) has approved a four-rate structure for taxing services similar to that of the goods under the new GST regime on friday.Most of the current exemptions has been retained in the new tax regime also on healthcare, education and economy train travels.
The headline rate has been set at 18% which was 15% earlier on telecom and financial services, though the lower rate of 12% has also been set for some services including work contract.Most of the transport modes will attract a 5% rate of GST including econony air travel, taxis and freight movement by road and trains. The highest rate of 28% has been set for some luxuries services like cinemas, casinos and hotels with Rs. 5000 or more room rentals per night.
According to the finance minister Mr. Arun Jaitley the categorization has been done in accordance with the nature of services and for some special reasons.
He further clarified that the net effect of GST will not inflationary as the input tax credit will reduce the tax liability and in return the cost of goods and services.
According to the recent analysis, though the aim of the GST was to simplify the tax system in India , the value based thresholds for hotels and restaurants might make the GST system complex.
Though the tax liability will not be much higher in accordance to the increased tax rates due to the claim of input tax credit at all stages, the huge rate increase from 15% to 18% and 28% may increase the end price for consumers.
The revenue secretary Hasmukh Adhia said , Even though the GST for many Services will be 18% as compared to the current rate of 15%, the increased tax rate should not pinch the consumers as the ultimate tax liability will not be affected much because of the wider scope of the Input Tax Credit under the new GST regime.
According to some experts the GST rate of 18% on banking and financial services will ultimately hurt the common man as the banks have already started charging for multiple withdrawals.
The economy air travel will attract a rate of 5% while business class will be charged at a rate of 18% as compared to the after abatement rates of 6% and 9%.
For the restaurant service providers the council has set different rates of GST.Restaurants having turover of Rs. 50 lakhs of less can enjoy GST rate of 5% by under composition scheme. NON-AC restaurants will be charged at a rate of 12% on food bills and 18% for the restaurants having liquor license. Under the current Service tax regime the non-ac restaurants were exempt.
Dining at 5-Star hotels will be costlier as it will attract GST rate 28%.
In the same way the hotel rooms with a tarrif of 1,000 per day will be exempt from GST and hotels with room rents of 1,000-2,000, 2,500-5,000 and 5,000 above will be charged at 12%, 18% and 28% respectively, but according to the analysis , the increased rate of tax under GST will not increase tax burden on such hotels and their customers as the entertainment tax will collapse into GST.