GST rates finalised: Insurance, banking and business class air-fare costlier; education, healthcare to be exempted from tax

The Good and Services Tax (GST) rates have been on Friday finalised by all-powerful GST Council. Education, healthcare will be exempted from tax but telephone bills, insurance and banking services, business-class air travel and sale of newspaper space for advertisements will become costlier.

The all-powerful GST Council Friday finalised tax rates for services under the new regime set to kick in from July 1, earmarking an 18 percent rate for telecom and financial services, which include banking and insurance, up from current 15 per cent.

Though the government insisted that tax incidence will be same as the current if telecom companies claim input tax credit, industry associations said adding that tax as a principal is billed in actuals to consumers and any increase in incidence will result in rise in cost to them.

Briefing reporters after the two-day meeting, Finance Minister Arun Jaitley said transport services will be taxed at 5 percent 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 exempt from GST.

Five per cent rate will also apply on rides from cab aggregators like Ola and Uber, which currently pay 6 percent tax. AC train travel will attract 5 per cent service tax, same as freight levy.

The GST Council finalised four tax rates of 5, 12, 18 and 28 per cent for services, including telecom, insurance, hotels and restaurants, under the biggest tax reform since the Independence.

The rates are in line with those finalised for goods.  With this, rates of all items except a handful, including gold, have been decided ahead of the roll-out of the Goods and Services Tax (GST) regime from July 1.

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Space selling for advertisement in newspapers will attract 5 per cent levy under the GST. It is exempted from tax currently.

Jaitley said telecom and financial services will be taxed at a standard rate of 18 per cent.

Revenue Secretary Hashmukh Adhia insisted that the tax incidence on telecom services will be unchanged at 15 per cent after the input credit is taken on equipment.

But Cellular Operators Association of India (COAI) Rajan Mathews said: “You have to differentiate between the impact of GST on companies and consumers. Companies may or may not structure their tariff as per provision of refund but customers will have to pay 18 percent tax everytime bill is generated so consumers will be hit under the GST.”

While the economy class air travel will attract 5 per cent GST, the business class will be charged at 12 per cent.

Jaitley said non-AC restaurants will charge 12 per cent GST on the food bill. The tax rate for AC restaurants and those with the 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 percent composition, he said.

Work contracts like white washing will be liable for a 12 percent 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 the race course.

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While the rate proposed for cinema halls is lower than 40 to 55 percent currently, it may not result in a reduction in tariffs on cinema tickets as states continue to hold the 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 the tariff of Rs 1,000 to Rs 2,000 per day would be 12 percent, 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.

Jaitley said the tax on gold and precious metals will be taken up at the next meeting of the Council on June 3.

The rate on services was the main thing discussed at the GST meet today, he said, adding that most service tax exemptions will be grandfathered and will continue.

The net effect of the GST will not be inflationary, he said, adding that healthcare and education services will continue to be exempted from tax under the GST.

Related Read: GST rate: New tax brackets bring good news; most food items, milk, electricity to be cheaper from July 1

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.

No decision was taken on tax rate on the lottery.

Jaitley said July 1 will be the rollout date for the GST.

“We are in state of readiness.”

Adhia warned the industry of changing rates before the GST rollout saying that under the anti-profiteering law, any entity can be called in to question for their actions after today.

“My advice to all the big industry players would be that please don’t do this. Let’s be honest, let us try to pass down the actual tax rate to the consumer and let’s not try to increase tariff only because of tax rate going up,” he said.

The machinery for anti-profiteering will be operationalised soon, he said.

He said once the anti-profiteering machinery is set up, balance sheet of companies can be checked if any undue profit has been taken or any tax benefit has not been passed on.

“We will look only at big companies. The department can suo motu take action,” he said.

Jaitley said, “As I said, 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.”

He said transport, covering goods, road, air and AC rail, has been kept at 5 per cent category because its main input is petroleum products and since petroleum is outside the GST, those paying service tax will not be able to take the benefit of input tax credit.

“The services have been split into 12 and 18 per cent and some 5 services into 28 percent category,” he said.

Jaitley said most of the work relating to GST rollout has been completed and only a few things remain.

The two-day meeting of the all-powerful GST Council, its 14^th so far, has decided on tax rates to be levied on various services under the GST regime.

The GST has been billed as the biggest tax reform since the Independence and seeks to have uniform taxation for various goods and services across the country, uniting it as a single market by subsuming a plethora of state and central levies.