Only air-conditioned hotels are required to pay service tax, clarifies finance ministry

Restaurants without air conditioning facilities will not charge any service tax while the ones with ACs will charge the tax only on 40 per cent of the total amount of the bill, the finance ministry said on Tuesday.

Restaurants, eating joints or messes which are not air-conditioned or have central heating in any part of the establishment are exempt from service tax.

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In other words, only air-conditioned or air-heated restaurants are required to pay service tax, the ministry said in a clarification on the levy.

In case of air-conditioned or air-heated restaurants, 60 per cent of the value is to be deducted from the total amount of the bill while applying service tax and the tax is to be calculated only on the balance 40 per cent.

With the increase in the rate of service tax to 14 per cent (subsuming the education cesses) from June 1, the effective rate of tax works out to 5.6 per cent of the total amount of the bill.

Prior to June 1, when the rate of service tax was 12.36 per cent (including education cesses), the effective rate was 4.94 per cent.

Service tax is chargeable on services provided by restaurants and eating joints 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.

Consumers will have to shell out more for phone bills, eating out and travel as the hike in the service tax rate to 14 per cent has come into effect from June 1.

The tax is levied on all services expect a small negative list.

Services that will turn costlier because of the higher tax rate kicking in include airlines, Railways, banking, insurance, advertising, construction, credit cards, event management and tour operators.