Ahead of the roll out of the goods and services tax (GST) from July 1, 2017, the all-powerful GST Council on the second day of its fourteenth meeting has finalized four tax rates that will apply to services including telecoms, insurance, hotels and restaurants under a new sales tax. The tax rates will be 5%, 12%, 18% and 28% - in line with those applying to goods. Besides, healthcare and education would remain exempted under the landmark GST.
Under the new tax regime, Telecoms and financial services will be taxed at a standard rate of 18%, while transport services will be taxed at 5%. Transport services would be taxed at 5%, and restaurants with turnover of Rs 50 lakh or below would face a 5% tax under GST, and non-AC restaurants at 12%. AC restaurants and those with liquor licences would charge GST at 18%, 5-star hotels at 28%; and hotels with tariff of Rs 1,000-2,500 and 12% rate. Further, Telecom and financial services would attract GST at 18%, and race clubs, betting and cinema halls at 28%. E-commerce players like Flipkart, Snapdeal will have to deduct 1% TCS (tax collected at source) while making payments to suppliers.
As per the list of services which will be subject to the GST, services provided by tour operators and leasing of aircraft will attract a 5% levy. While economy class travel in airplane is likely to get cheaper with 5% tax, a similar lower levy has been decided for transport of passengers by air embarking from or terminating in a regional connectivity scheme airport. Besides, travelling on metro, local train and religious travel including Haj yatra will all continue to be exempt from GST.
The GST Council has also approved the rates of compensation cess for five luxury/demerit items. The proceeds from the cess will go into the compensation fund which would be used to bridge any tax revenue gap for states in the first five years of GST. The items that will be levied with the cess are pan masala, tobacco, coal, aerated drinks and motor vehicles. While these items, commonly known as sin or demerit goods, have been assigned their GST rates, the cesses will be levied on top of that. Except coal, all the other items will be taxed at the maximum GST rate of 28%. However, no consensus could be reached on the rate to apply on gold as well as beedi. The Council will meet again on June 03, for a decision in this regard.
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