Service Tax on Restaurant
Services Specified at 5.6% after 40% Abatement on 14% ST
Service
Tax only in AC Restaurants
[Service Tax Circular No. 184
dated 3rd June 2015]
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. 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. In other words, only air-conditioned or air-heated restaurants are
required to pay Service Tax.
In respect of such air-conditioned or
air-heated restaurants which are required to pay Service Tax, 60% 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%. With the increase
in the rate of Service Tax to 14% (subsuming the Education Cesses) with effect
from 1.6.2015, the effective rate of tax will be 5.6% of the total amount
charged. Prior to 1.6.2015, when the rate of Service Tax was 12.36% (including
Education Cesses), the effective rate was 4.94%.
Subject: Clarification on rate of service tax on restaurant service.
The Service Tax rate has been increased to 14% with
effect from 1st June, 2015. Certain doubts have been raised in regard to
abatement on value of services provided in relation to serving of food or
beverages by a restaurant, eating joint or a mess, having the facility of
air-conditioning or central air-heating in any part of the establishment,
at any time during the year.
2. Matter has
been examined. Valuation of services provided in relation to serving of food or
beverages by a restaurant, eating joint or a mess having the facility of
air-conditioning or central air-heating in any part of the establishment, is
determined as provided in rule 2C of the Service Tax (Determination of Value)
Rules, 2006. In the said rule, service portion in an activity wherein goods,
being food or any other article of human consumption or any drink (whether or
not intoxicating) is supplied in any manner as a part of the activity, at a
restaurant has been specified as 40 percentage of the total amount charged for
such supply. In Budget, 2015, no change has been made in abatement and the rate
of service tax on the abated value has been increased to 14% with effect from
1st June, 2015. Therefore, effective service tax rate would be 5.6% (14% of
40%) of the total amount charged.
Hence, with the increase in the applicable rate of
service tax from 12.36% (including education cesses) to 14%, the effective rate
on such establishments has increased from 4.9% to 5.6% of the total amount
charged.
3. It is further
clarified that exemption from service tax still continues to services provided
in relation to serving of food or beverages by a restaurant, eating joint or a
mess, other than those having the facility of air-conditioning or central
air-heating in any part of the establishment, at any time during the year.
4. All concerned
are requested to acknowledge the receipt of this circular.
5. Trade Notice/
Public Notice to be issued. Wide publicity through local news media including
vernacular press may be given. Hindi version shall follow.
F.No. 334/5/2015-TRU(Pt.)