India Finalizes Four Tax Rates for Services

Beverage companies, for instance, said the effective tax rate of 40 per cent on sweetened aerated water and flavoured water under GST was against the stated policy of maintaining parity with the existing weighted average tax, which is significantly below 40 per cent.

The GST Council finalised four tax rates of 5, 12, 18 and 28 per cent for services, including telecom, insurance, hotels and restaurants, under the biggest tax reform since the Independence. Majority of the consumer goods and industrial inputs/capital goods have been classified under the 18% tax bracket, whereas, coal, sugar, tea, coffee (except instant) and edible oil are few of the items classifiable under the 5% tax bracket.

Restaurants with Rs 50 lakh or below turnover will go under the 5 percent composition, he said. The rates for hotels with the tariff of Rs 1,000 to Rs 2,000 per day would be 12 percent, while those with Rs 2,500 to Rs 5,000 would be 18 per cent.

The government has said that this list of taxation rates for goods and services will be subject to further vetting during which the list may undergo some changes. Finance Minister Arun Jaitley had on Thursday evening said that GST is not inflationary on goods or services. For example, services like economy air-travel are taxable at 5%, while air travel by any other class will be taxable at the rate of 12%.Similarly, restaurant services (with air-conditioning or license to serve liquor) shall be taxable at 18%, while services by a hotel rated 5 stars shall be taxable at 28% and services by restaurants without air-conditioning or license to sell liquor will be taxable at 12%.

It has also been announced that e-commerce players will need to deduct 1 per cent tax at source before paying suppliers, a move that is unlikely to directly affect consumers. "This is also likely slow down the planned rollout of infrastructure across the country and will have an impact on flagship govt initiatives like Digital India, Cashless India, and others", said Rajan S Mathews, Director General, COAI.

Under the new tax regime, there will be a uniform rate of 28% on cars, unlike the multiple rates of tax levied presently. "Worse, there is a fear this level of tax may drive most of the betting into illegal channels, something that will benefit neither the race clubs, nor the government".

The GST Council in its two-day meet finalised the rates for goods and services, giving companies adequate time to work out their pricing policies. That takes the total number of services out of GST to 83.

  • Zachary Reyes