The effective incidence of service tax on food bill in air-conditioned restaurants will go up to 5.6% as against 4.94% previously, a senior finance ministry official has said.
The increased incidence follows government raising service tax rate from 12.36% to 14% with effect from June 1, 2015.
Air conditioned hotels and restaurants attract a service tax on 40% of the billed amount. At old service tax rate, the effective rate of taxation came to 4.94% of the food bill and at the higher rate of 14% it comes to 5.6%.
“14% service tax on food/beverage in air-conditioned hotels and restaurants calculated on 40% of bill amount. Effective tax rate 5.6%,” Revenue Secretary Shaktikanta Das said in a tweet. He also said that food/beverage bills in non air-conditioned hotels and restaurants are exempt from service tax.
Finance Minister Arun Jaitley in his Budget had proposed to raise service tax from 12.36% (including education cess) to 14%. The proposal took effect from June 1, 2015.
The tax is levied on all services, except a small negative list. Some of the key services that attracts the levy include railways, airlines, banking, insurance, advertising, architecture, construction, credit cards, event management and tour operators.
Mobile operators and credit card companies have already started sending messages to subscribers conveying the increase in service tax rate which will have a bearing on the bills.
