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Service Tax on Restaurants

Burden of Service tax increased

Service Tax on Restaurants

Finance Minister in his budget proposed to raise the Service Tax Rate from 12.36% to 14% which includes the education cess. This propsaol got approval of The President of India, as The President of India sanctioned the Finance Bill, 2015. The proposal for the change in service tax got applicable from June 1, 2015. Thus the rate of service tax to be applicable from June 1,2015 is 14% To know further details on the applicability please refer to the article Changes in Service Tax Rate From June

Service Tax on Restaurants

A clarification on service tax applicability on restaurants has been received by the finance ministry recently, as perwhich service tax is only applicable on A/C restaurants and the rate at which it is applicable is 5.6% This effective rate is computed as 40% of the service tax rate or service tax rate of 14% to be levied on the 40% of the bill amount.

Ministry clarified that “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,”

Service Tax on Restaurants

The ministry added while clarifying the applicability that “In other words, only air-conditioned or air-heated restaurants are required to pay service tax, and 60 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”

This means that if the restaurant is air conditioned it will attract a partial service tax at the rate of 5.6% from June 1.

Earlier the effective rate of service tax was 4.94% (40% of 12.36%) before the increase from 12.36% to 14% on June 1

Service Tax on Restaurants

This increase of rate has made the services costlier as the tax is levied on all the services except a small negative list.

Service Tax on Restaurants

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Service Tax on Restaurants

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