Month-long process of crafting India's new tax structure finally ended on Friday with the central and state governments finalising four tax rates of 5, 12, 18 and 28 per cent for the upcoming GST regime .
The GST Council decided to tax some of the services like hotels and restaurant based on their room tariff and turnover of business. Under the new tax structure, non-AC restaurants will charge 12 per cent GST on food bill. Tax rate for AC restaurants and those with liquor licence will be 18 per cent, while 5-star hotels will charge 28 per cent GST.
Hotels would be taxed on the basis of their room tariff. The Council said that there won't be any tax for the hotels who charge Rs 1,000 for a day. Tax rate for hotels with tariff of Rs 1,000 to 2,000 per day would be 12 per cent while those with tariff of Rs 2,500 to Rs 5,000 would be 18 per cent. GST for hotels with tariff above Rs 5,000 will be 28 per cent.
There may be some reasoning behind this new tax formulations, but tax consultants feel that life will get more, not less, complicated for many after the GST is effective. Speaking to the Reuters, Deloitte Haskins Senior Director Saloni Roy said: "For service providers, it is going to get troublesome."
Here's how new tax rates will apply on various services:
Transport service: Cab rides could get marginally cheaper for customers from July 1 as the incidence of tax will come down to five per cent for bookings made on cab aggregators like Ola and Uber. Currently, a tax of six per cent is levied on rides booked through cab aggregators. "The GST rate on cab aggregators is proposed to be at 5 per cent as compared to the current abated service tax rate of 6 per cent. This is the rate closest in the various bands of GST rates of 5, 12, 18 and 28 per cent," Roy said.
Air Travel: Under the new taxation system, economy class air travel will attract 5 per cent tax while business class will be charged 12 cent GST.
Healthcare services: There won't be any tax on healthcare and education under the new taxation system.
Telecom services: The GST Council decided to tax the telecom and financial services at a standard rate of 18 per cent. With this, the Telecom services are set to become costlier under the new tax regime. Currently, telecom consumers are charged 15 per cent in form of tax and cess over their phone bills. Telecom players expressed disappointment with the rate saying telecom services will become expensive for consumers and impact the government project like digital India and digital payments.
Entertainment: Under the GST, entertainment tax will be merged with service tax and a composite 28 per cent tax rate will apply on cinema services as well as gambling or betting at race course. While the rate proposed for cinema halls is lower than 40 to 55 per cent as per current incidence, it may not result in a reduction in tariffs on cinema tickets as states continue to hold right to levy local charges on them.
Automobiles: Motorcycles of more than 350 cc engine capacity will attract a total of 31 per cent tax under the GST regime, same as the tax incidence on private aircraft and luxury yachts. All cars, buses, trucks and motorcycles including moped as well as personal aircraft and luxury yachts will attract a peak Goods and Services Tax of 28 per cent.
Tobacco products: Filter and non-filter cigarettes not exceeding 65 mm will attract cess of 5 per cent plus Rs 1,591 per 1000 sticks. For cigars, a hefty levy of 21 per cent or Rs 4,170 per 1000 sticks, whichever is higher, would be levied. Branded gutkha will be slapped with a cess of 72 per cent, while smoking mixtures for pipes and cigarettes will attract a levy 290 per cent.
Luxury items: On gold, states demanded a 4 per cent tax even though the rate is not among the 5, 12, 18 and 28 per cent approved bands. The GST Council agreed to impose cess on luxury goods over and above the peak tax rate of 28 per cent.