Clarification on Applicability of Service Tax For Hotels and Restaurants

Clarification on Applicability of Service Tax w.e.f. 1st April, 2012

The rate of Service Tax has been increased from 10% to 12%. The net rate of Service Tax would be 12.36% i.e. 12% Service Tax +3% Cess (2% Education Cess and 1% Higher Education Cess) and would be effective from 1st April, 2012.

Abatement:
The abatement available for hotels (room) is 50% and Restaurants (A/c Restaurant having licence to serve the liquor) 70%. It means the hotels having room Tariff of Rs. 1000/- and above has to pay the Service Tax on 50% of Room Tariff @ 12.36% (the net rate of Service Tax comes to 6.18%).This would come into force from 1st April, 2012.
For A/c restaurants (having Licence to Service the Liquor) the Service Tax is applicable on 30% of the Bill @ 12.36% (the net rate of Service Tax comes to 3.708%). This would come into force from 1st April, 2012.
Members may please recall that Hotels/Restaurants/clubs are covered under Mandap Keepers for holding social functions such as marriage, conferences and seminars where substantial food is served. It attracts the Service Tax @ 12.36%. There is abatement of 40%. It means the Service Tax is applicable on the 60% of the total bill or the net rate of Service Tax comes to 7.416%. This would come into force from 1st April, 2012.

Please note that the abatement for hotels/restaurants/Mandap Keepers has been proposed to reduce in the Union Budget 2012-13, as per details given below:

 

 

Service Description	Applicable w.e.f.1st April 2012		Proposed abatement (reduced)  in the Union Budget 2012-13    (would  not be effective till the  Finance Bill 2012  is passed)
	Present Abatement	Service Tax @12.36%	Proposed Abatement	Service Tax @12.36%
Hotels -Room Rent (Having tariff of Rs. 1000/- and above)	50%	6.18%	40%	7.416% =~7.42
A/c Restaurants( Having Licence to serve the liquor)	70%	3.708%	60%	4.944%
Mandap Keeper	40%	7.416%	30%	8.65%