Telephone bills, insurance and banking services, business-class air travel and sale of newspaper space for advertisements will become costlier in the upcoming GST regime but education and healthcare will continue to be exempt from tax.
Edit: GST side-effects
The GST Council at its 14th meeting today finalised four tax rates of 5, 12, 18 and 28 per cent for services, including telecom, insurance, hotels and restaurants, under the new regime set to kick in from July 1. The rates are in line with those finalised for goods on Thursday.
With this, rates of all items except a handful, including gold and precious metals, footwear and branded items, have been decided ahead of the July 1 rollout of the GST regime. The rates of the remaining goods would be decided at the next meeting in New Delhi on June 3.
“There was long debate in which states had some concerns, and finally the GST in relation to the service sector was completely adopted in today’s meeting,” said Finance Minister Arun Jaitley.
Jaitley said telecom and financial services, which include banking and insurance, would be taxed at a standard rate of 18 per cent. The tax on telecom services such as phone bill payment is 15 per cent at present. Also, the current service tax on insurance sector is about 15 per cent, including cess.
Revenue Secretary Hasmukh Adhia, however, insisted the tax incidence on telecom services would be unchanged at 15 per cent after the input credit is taken on equipment.
Transport services would be taxed at 5 per cent leading to a small drop in the economy class air travel which currently attracts 6 per cent service tax. Non-AC train travel, including on local trains and metro, as well as religious travel, including Haj yatra, will remain exempted from GST.
Five per cent rate will also apply on rides from cab aggregators such as Ola and Uber, which currently pay 6 per cent tax.
AC train travel will attract 5 per cent service tax, same as freight levy. Space selling for advertisement in newspapers will attract 5 per cent levy under the GST. It is exempted from tax currently.
While the economy class air travel will attract 5 per cent GST, the business class will be charged at 12 per cent.
Non-AC restaurants will charge 12 per cent GST on food bill. The 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.
Restaurants with Rs 50 lakh or below turnover will go under the 5 per cent composition, he said. Work contracts such as whitewash will be liable for a 12 per cent GST.
Entertainment tax will be merged with service tax under the GST and a composite 28 per cent levy charged on cinema services as well as gambling and betting at race course.
While the rate proposed for cinema halls is lower than 40 to 55 per cent currently, it may not result in a reduction in tariffs on cinema tickets as states continue to hold right to levy local charges on them.
Hotels and lodges charging per day tariff of Rs 1,000 will be exempt from the GST. The rates for hotels with tariff of Rs 1,000 to Rs 2,000 per day would be 12 per cent, while those with Rs 2,500 to Rs 5,000 would be 18 per cent. The GST for hotels with tariff above Rs 5,000 will be 28 per cent.
GST on services was the main item discussed at the GST meet today, he said, adding most service tax exemptions will be grandfathered and will continue.
Net effect of GST will not be inflationary, he said, adding that healthcare and education services will continue to be exempted from tax under GST.
E-commerce players like Flipkart, Snapdeal will have to deduct 1 per cent TCS (tax collected at source) while making payments to suppliers, Adhia said. There will be no tax on lottery.
Jaitley said July 1 will be the rollout date for GST. “We are in state of readiness.”
Adhia warned of industry changing rates before the GST rollout, saying under the anti-profiteering law, any entity could be called in to question for their actions after today. The machinery for anti profiteering will be operationalised soon, he said.
Jaitley said goods transport, road transport, air transport and air-conditioned railway transport were being kept in five per cent category. “Because their main input is petroleum products and since petroleum is outside GST, that paying service tax will not be able to take the benefit of input credit. So they have been given the lowest rate,” he said.
‘Won’t lead to inflation’
We made sure that consumers don’t have to pay more. The net effect of goods and services is not going to be inflationary because once the system of input credits starts, the actual incidence is going to be positively impacted. Arun Jaitley, Finance Minister.
Big companies warned
Big companies, please don’t change rates before GST rollout. Let’s try to pass down actual tax rate to consumers and let’s not try to increase tariff only because of tax rate going up.
27 Jan 2021
28 Jan 2021