In a clarification, the ministry has made it clear that the service tax is close to 14% now will stay and eating places amd messes without the air-conditioned facility will only get exemption from the tax. If these eating joints with AC anywhere in the premises will attract the tax, said the ministry.
Currently, Service Tax is applicable to 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, while serving food or beverages.
It means if you are eating in any AC restaurant or joint like KFC or McDonald, you are paying 14% tax on say Rs.100 worth burger. In addition, the restaurant will have to pay its own taxes, including income tax and other local taxes. If a burger costs say Rs.60 at McDonald, the taxes like service charges, service tax and ancillary charges or taxes make it finally touch about Rs.100.
“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,” said the statement making it clear that the 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 percent 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 percent. Every such tax finally ends in inflation.
With the increase in the rate of Service Tax to 14 percent (subsuming education cess) with effect from June 1, 2015, the effective rate of tax will be 5.6 percent of the total amount charged. Prior to June 1, when the rate of Service Tax was 12.36 percent (including Education Cesses), the effective rate was 4.94 percent, said the ministry in a statement.