May, 2017: GST Council fixes rates for services

The GST Council fixed the rate of tax for goods and services under the new indirect tax regime. With regard to the GST on services, the council broadly agreed on 4 tax brackets having 5%, 12%, 18% and 28% of tax instead of the current uniform rate.

Finance Minister Arun Jaitley said that all services have been fitted into four different rates, which are 5%, 12%, the standard 18% and the luxury rate of 28%, Transport services (Railways, air transport) will be under the 5% category since the main input used for such services are petroleum which is outside the GST Net. Hotels and lodges charging rent below Rs. 1000 are exempted under the GST.
Restaurants with an annual turnover of less than Rs 50 lakh will fall under the 5 percent tax slab. Work contract services such as those paid by civil contractors for infrastructure construction currently pay a central tax of 6 percent, state taxes ranging from one to five percent, but without any input credit.

The Council fixed 12% GST on non-ACs food hotels. Hotels/lodges with a room rate between 1000-2500 will also be charged with 12%. Work contractors, who were paying a lot of embedded taxes, will pay a uniform rate of GST of 12% under the new tax regime with all input credits available. “So, effectively, though the rate is 12 percent, the level of taxation with input credit will come down below the present level,” Jaitley said.

Air-conditioned restaurants with liquor licences will be taxed at 18 percent. Telecoms and financial services will also be taxed at a standard rate of 18%. Higher tax rate of 28% will be levied for luxury hotels. While financial services, insurance and telecom will attract a GST rate of 18 per cent, the Council fixed the tax collection at source for e-commerce companies at 1 per cent as against a provision of up to 2 per cent under the law. This tax will have to be collected by the e-commerce players on behalf of the suppliers, who in turn could avail refund in the next tax cycle.

Five star and luxury hotels, Services related to gambling, race club betting and cinema halls will also be taxed at higher rate. Cinema halls were currently paying a service tax of 15 percent plus a state entertainment tax that ranged from 28 percent to about 100 percent. “All these will be subsumed under the 28 percent GST rate, bringing out the costs of service significantly”, Jaitley said. Casinos will also come under the 28 percent tax bracket.

The final rates have been fixed in a way such that the impact on inflation as well as revenue to the government is near neutral. The availability of input tax credit to the services industry for the goods will lower prices, according to the minister. He added that the proposed anti-profiteering body will ensure that the companies pass on the benefit of lower tax incidence to consumers.

The Council approved rates for 1,211 goods category. The rates of six categories of products, including bidis, gold, agriculture implements, textile, footwear and bio-diesel, will be taken up at another round of meeting in June 2017.