GST rates finalised for services; education, healthcare exempted
GST Council agrees on rates of 5%, 12%, 18%, 28% for services
SRINAGAR: The Goods and Services Tax (GST) Council, on the final day of its two-day deliberations here, on Friday assigned tax rates to the services sector, ahead of the July 1 roll-out of the unified indirect tax to create a single national market.
The Council decided to fit services into 5%, 12%, 18% and 28% slabs with most items falling in the 12% and 18% categories, finance minister Arun Jaitley said in a briefing on its decisions.
Although the so-called ‘headline’ GST rate of 18% on services is higher than the 15% service tax being levied at present, the actual incidence of tax may be lower as service providers will be getting credit for taxes paid on the goods used for the provision of services, Jaitley said.
Revenue secretary Hasmukh Adhia explained that in the current service tax rate of 15%, there is a three percentage point tax on goods used in the provision of services, on which credit is not available. This embedded tax cost, he said, will get reduced when GST is implemented.
However, the telecom industry expressed disappointment with the rate for the sector.
“The 18% rate will further stress the already bleeding sector,” said a statement from the Cellular Operators’ Association of India.Quoting director general Rajan Mathews, the statement added that the proposed rate will likely slow down the roll out of infrastructure.
Adhia said that putting telecom services in the 18% slab does not mean that the actual tax burden will go up. The effective rate may be 15% or less, he added.
Jaitley insisted that GST will not be inflationary for services and added that the Council had made every effort to ensure that the common man does not have to pay more for goods or services.
At its next meeting in New Delhi on June 3, the Council will decide on the tax rates for a few remaining items—lotteries among services, and gold jewellery, bidis, packaged food, clothing and footwear among goods.
Services like health, education, train travel in the lowest class, and metro rides will not attract GST. Goods transport, road transport and travelling in air-conditioned railway coaches will attract 5%.
This rate will apply to cab aggregators like Ola and Uber as well. The idea behind introducing a lower rate for these services is that their main input is fuel, which has been kept out of the GST net. That denies service providers the chance to claim credit for the central excise duty and value added taxes paid on fuel while paying GST.
Economy class air travel will be taxed at 5% and business class at 12%. Services of five-star hotels, race clubs and cinemas as well as betting and gambling will attract the 28% slab. Remaining services will fall in the 12% and 18% slabs, the closest to their current effective tax incidence. Municipal corporations are, however, empowered to levy taxes on movie tickets over and above the 28% to mobilise funds.
Restaurants with ₹50 lakh sales or less can opt for a scheme to avail the 5% slab with no tax credits.
Eating at a non air-conditioned restaurant will attract 12% tax, while air-conditioned restaurants and those with a liquor licence will have to charge 18%. Restaurants in five-star hotels will attract the 28% tax rate, the same as luxury hotels.
Hotels with tariff lower than ₹1,000 a day are exempted from GST. Those charging ₹1,000-2,500 a day will charge customers 12%, while those with rents between ₹2,500 and ₹5,000 will levy 18%.
The Hotel and Restaurant Association of Western India (HRWAI) called the rates uncompetitive and said it will make a representation to the Centre.
The service tax exemption list, which has 63 items, is being pruned. Jaitley said there will not be any adverse impact on account of this.
The Council also decided that e-commerce firms will have to deduct 1% tax collected at source while making payments to vendors using their platform in order to prevent any under-reporting of sales. Vendors will be allowed full credit for this deduction.
A full schedule of services and their GST rates was not disclosed at the time of going to press.