With the increase in the rate of Service Tax to 14% from June 1, the effective rate of tax will be 5.6% of the total amount charged.
The finance ministry on Tuesday clarified that service tax would be levied only on air-conditioned or air-heated restaurants.
“Restaurants, eating-joints or messes which do not have the facility of air-conditioning or central air-heating in any part of the establishment are exempt from service tax,” said the finance ministry in a statement.
At present, service tax is chargeable on services provided by restaurants, eating-joints or messes that have 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.
In case of air-conditioned or air-heated restaurants, “Sixty per cent of the value is to be deducted from the total amount charged, while applying the rate of service tax and tax is to be calculated on the balance 40 per cent,” it added.
With the increase in the rate of service tax to 14 per cent (subsuming the education cesses) from June 1, the effective rate of tax would be 5.6 per cent of the amount charged.
Prior to June 1, when the rate of service tax was 12.36 per cent (including education cesses), the effective rate was 4.94 per cent.
After the increase in the rate of the tax, some of the key services that have become costlier are railways, airlines, banking, insurance, advertising, architecture, construction, credit cards, event management and tour operators.
