Service Tax on Restaurants(Complete Guide)
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Service Tax Applicability on Restaurants, Hotels
Applicabilty before 1st April 2013
All kind of restaurant whether big ,small should pay service taxonly if :
-Services Provided in relation to serving of food restaurant or beverages by a restaurant, eating joint or a mess having the facility of air conditioning or central air heatingin any part of establishment, at any time during the year
AND
-Which has the license to serve alcoholic beverages.
Applicabilty from 1st April 2013
Services provided in relation to serving of food or beverages or other article of human consumption(whether intoxicating or not) by a restaurant, eating joint or a mess,having:
(i) The facility of air-conditioning or central air-heating in any part of the establishment, at any time during the year
Supplied in Any Manner, as a part of the acitivity
Analysis
From 1st April 2013, now service tax is applicable only if the restaurant has the facility of air-conditioning or central air heating in any part of the establishment at any time during the year . If the restaurant does not have any of these, no service tax will be applicable. Hence it is irrelevant whether the food restaurant have the liquor license or not.
It is important to note that serving of food in a restaurant is a composite transaction involving sale and service. While food is sold, services relate to the use of restaurant space and furniture, air-conditioning, waiters, linen, cutlery and crockery, music etc which are included in the Bill.
Having recognized serving food in a restaurant as a composite transaction, the question arises as to how to identify the service component. For arriving at the service component, an abatement of 60% has been provided for food sold under Rule 2C of Service Tax (Determination of Value) Rules, 2006 and the rest of the bill amount (i.e 40%) relates to services provided by restaurant on which restaurant is liable to pay service tax. Hence from now on KFC ,Nirulas,Haldiram, Bikaner, Mc Donald etc will be liable to pay tax.
Taxable Value-
|
Cost |
Amount |
|
Food Items |
A |
|
Beverages |
B |
|
Service Charge(5% to 10%) |
C[% of (A+B)] |
|
Total Amount* |
A+B+C |
|
Service Tax on Total Amount-4.94% ie.12.36% of 40% of Total Amount |
4.94% of (A+B+C) |
*Exclusive of VAT
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