Effective May 1, some services have reasons for cheer while a fresh dose of taxes become effective on consumption of services for others.

The service tax (so called misery tax) on medical services has been completely withdrawn so much so that not only the service tax proposed on clinical establishments, doctors and diagnostic labs is withdrawn but the tax on services on which tax is presently applicable (April 30) shall no longer be leviable from May 1.

Health services were brought into tax net from July 2010 on services provided by hospitals, nursing homes, clinics to employees of business entities where payment for such check-up or preventive care was made by the employer entity and health check-up or treatment of persons whose payment was made directly by insurance company under cashless scheme. This levy will not be applicable any more.

Coaching centres

Another beneficial provision is in relation to coaching and training institutes. Any commercial coaching or training in relation to pre-school coaching or education that leads to the award of any qualification/ degree/diploma/certificate recognised by law in India will not be subject to service tax.

Service tax at 5 per cent shall be levied on all hotel rooms where the tariff of hotel rooms is Rs 1,000 per day or more.

The rate of tax is 10 per cent but 50 per cent abatement has been provided which makes the effective rate of tax to 5 per cent. Service tax would not be payable by hotels where room tariff is less than Rs 1,000 a day. In hotels where rooms are provided with differential tariffs, say a set of rooms having tariff of less than Rs 1,000 and another set of rooms with tariff of more than Rs 1,000, service tax will be attached on rooms with higher tariff only.

For the purpose of service tax, declared tariff (published rates) shall be considered and not the discounted or negotiated tariff.

It would cover all charges payable for amenities such as air conditioner, furniture, refrigerator etc and any electronic gadgets installed in the room (e.g, Internet connection). However, cost of extra bed will not be taxed.

Also, if cost of meals is included in tariff, it will be taxable, but room service charges may not be taxed.

Air conditioned restaurants having licence to serve alcoholic beverages come under the ambit of service tax. . These restaurants may or may not be serving liquor but holding a licence to serve will make them liable to service tax.All food and beverage sales will be charged to service tax.

The tax will be charged on the gross amount of restaurant bill including service charges or surcharge, if any. Amounts not taxable would include sales tax or VAT levied on food sale, home delivery or packing charges, and goods sold at MRP (such as mineral water, drinks or juices) and amount paid by customers as ex gratia (tips) to staff of restaurant.

The tax incidence in this case will, however get reduced as an exemption would be available to the extent of 70 per cent of the bill amount to defray the cost of food sold and cost of services involved on a lump sum basis.

Thus, if a restaurant bill is for Rs 2,000, service tax at10 per cent would be levied on Rs 600 only, being 30 per cent of bill which will come to just Rs 60.

The levy of service tax on hotel accommodation and restaurants is a new one. All such units will have to get themselves registered with service tax department latest May 30, 2011.

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