The Finance Ministry has clarified that only air-conditioned or air-heated restaurants are required to pay service tax. Reiterating that consumers will not be charged any service tax for eating in non-air conditioned restaurants while those who eat in an AC restaurant will have to pay the service tax on only 40 per cent of the total amount.
A finance Ministry statement said that restaurants, eating-joints or messes, which do not have the facility of air-conditioning or central-heating in any part of the establishment are exempt from service tax. At present, service tax is chargeable on services provided by restaurants, eating-joints or messes which have the facility of air-conditioning or central air-heating in any part of the establishment at any time during the year in relation to serving of food or beverages.
The statement further added that in respect to such air-conditioned or air-heated restaurants which are required to pay service tax, 60 per cent of the value is to be deducted from the total amount charged while applying the rate, and the tax is to be calculated on the balance 40 per cent.
The statement has elaborated that with the increase in the rate of service tax to 14 per cent (subsuming the education cesses) with effect from June 1, 2015, the effective rate of tax will be 5.6 per cent of the total amount charged, while prior to June 1, when the rate of service tax was 12.36 per cent (including education cess), the effective rate was 4.94 per cent. Finance Minister Arun Jaitley in his Budget had proposed to raise service tax from 12.36 per cent (including education cess) to 14 per cent.