apply to air-conditioned restaurants that do not serve liquor. The distinction is artificial, and I propose to levy service tax on all air-conditioned restaurants," he said while presenting the Budget on Thursday.
Bills are set to rise by almost Rs. 5 per Rs. 100.
Air-conditioned restaurants were subjected to service tax last year, but was restricted to those that served liquor also: they were imposed with a service tax of 12.36% applicable on 30% of the bill, which came into effect on April 1 last year.
"These restaurants provide better ambience and seating facilities which is a service and in that manner, the intent of government to levy service tax on such restaurants is right," consultancy company Deloitte said in a reaction to the move.
Beginning April 1 this year, consumer will pay both value added tax and service tax, if not the service charge that is levied by some restaurants in lieu of tips to the waiters.
A majority of restaurants and eatery chains such as Pizza Hut, McDonalds, KFC and small eateries that serve only beverages or even snacks would be covered under this levy, if their premises are air-conditioned.
The man on the street reacted with dismay. Said Manisha Kashyap, 32, a software engineer at multinational firm: "We are struggling with price hikes and salary freeze. Now, we will also get charged for spending quality time with family while dining at comfortable zones."
The decision has also attracted flak of the restaurants industry.
"The inclusion of all a/c restaurants and cafes to pay service tax will add to the hospitality sector's woes. Every restaurant is fitted with an a/c, which is not luxury but necessity," said Garish Oberoi, vice-president, Federation of Hotel and Restaurant Association of India.
The minister stressed that only 700,000 of the nearly 1,700,000 registered service tax assesses were filing returns. On service tax, he presented few proposals.
"Stability in the tax regime is important," he said, adding, "Hence, I propose to include only two services which deserve to be in the negative list - vocational courses by institutes affiliated to State Council of Vocational Training and testing activities in relation to agriculture and agricultural produce."