Services of transfer of right to use goods would attract the same GST rate as applicable to the supply of such goods.

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1 24 May 2017 EY GST News Alert GST Council finalizes tax rates for services under GST regime Executive summary This Alert provides an insightful coverage of news related to GST and recent developments that are likely to impact trade. It will act as a summary to keep you on top of the latest GST news. For more information, please contact your EY advisor. The Goods and Services Tax (GST) Council, during its meeting held on 19 May 2017, broadly approved the GST rates for services at nil, 5%, 12%, 18% and 28%. The Council finalized the classification of various services into different tax slabs, while proposing to continue with exemptions in respect of most of the services that are currently exempt. The list of services that will be under reverse charge and the exemption list have been released in the public domain for general information. There could be some changes in these lists on further vetting. Rail transport and economy class air travel would attract GST at the rate of 5%. Construction of a complex, building and civil structure would be taxed at 12%. Services by way of admission to entertainment events, access to amusement facilities and supply of food/drinks in air-conditioned restaurants in five-star or above rated hotels would attract a higher GST rate of 28%. Services of transfer of right to use goods would attract the same GST rate as applicable to the supply of such goods. While the partial reverse charge mechanism has been done away with, services of GTA, legal services, cab aggregator services, sponsorship services etc. will be covered under reverse charge mechanism. The next meeting of the Council is scheduled on 3 June 2017 to decide on the rates with respect to gold, textiles and a few other goods.

2 Background The Goods and Services Tax Council (GST Council), during its meeting held on18-19 May 2017, finalized the classification of goods and services into different tax slabs of GST and released schedules in public domain. The Council proposed to continue with the exemptions on most of the services that are currently exempt. Services that will be taxed under reverse charge have been also approved by GST Council. The next meeting of Council is scheduled on 3 June 2017, mainly to decide rate of tax for gold, textile and few other goods. Services covered under reverse charge mechanism as approved by GST Council Taxable services provided by any person located in a non-taxable territory to any person located in the taxable territory other than non-assessee online recipient (for Online Information and Data Retrieval services). Services provided by a goods transport agency (GTA) in respect of transportation of goods by road. Services provided by an advocate or firm of advocates by way of legal services. Services provided by an arbitral tribunal. Sponsorship services. Services provided by Government or local authority. The same will not include: renting of immovable property, services by the Department of Posts by way of speed post, express parcel post, life insurance, and agency services provided to a person other than Government; services in relation to an aircraft or a vessel, inside or outside the precincts of a port or an airport; Transport of goods or passengers. Services provided by a director of a company to the said company. Services provided by an insurance agent to person carrying on insurance business. Services provided by a recovery agent to a banking company, financial institution or NBFC. Services by way of transportation of goods by a vessel from a place outside India up to the customs station of clearance in India. Transfer or permitting use or enjoyment of a copyright covered under clause (a) of section 13(1) of the Copyright Act, 1957 relating to the original literary, dramatic, musical or artistic works. Radio taxi or passenger transport services provided through electronic commerce operator. In all the above mentioned services, GST shall be payable by a person other than service provider. The list is similar to the existing list of services covered under reverse charge mechanism barring certain additional services. Services classified under 5% GST rate with availability of ITC of input services Transport of goods by rail Transport of passengers by air in economy class

3 Transport of passengers by rail 1 Transport of goods in a vessel 2 Leasing of aircrafts by a scheduled airlines for scheduled operations. Services with 5% GST rate and full ITC Selling of space for advertisement in print media Services by way of job work in relation to printing of newspapers Services with 5% GST rate without ITC Services of GTA relating to transportation of goods Renting of motorcab 3 Transport of passenger by Air conditioned contract/stage carrier other than motorcab Radio taxi Tour operator services Services with 12% GST rate and full ITC Transport of goods in containers by rail by any person other than Indian Railways Transport of passengers by air in other than economy class Supply of Food/drinks in restaurant not having facility of air-conditioning or central heating at any time during the year and not having license to serve liquor Renting of hotels, inns, guest houses, clubs, campsites or other commercial places meant for residential or lodging purposes having room tariff of Rs.1000 or more but less than Rs.2500 per room per day Construction of a complex, building, civil structure or a part thereof, intended for sale to a buyer, wholly or partly 4 Temporary transfer or permitting the use or enjoyment of any Intellectual Property (IP) to attract the same rate as in respect of permanent transfer of IP. Services attracting 12% GST rate with ITC available on input services Services provided by foreman of chit fund in relation to chit Services classified under 18% GST rate with full ITC Supply of food/drinks in restaurant having license to serve liquor Supply of food/drinks in restaurant having facility of air-conditioning or central heating at any time during the year Supply of food/drinks in outdoor catering Renting of hotels, inns, guest houses, clubs, or other commercial places meant for residential or lodging purposes with room tariff of INR 2500 and above but less than Rs.5000 per room per day. Bundled service by way of supply of food of human consumption or any drink, in a premises together with renting of such premises. Composite supply of Works contract as defined in sec. 2(119) of CGST Act. All other services not specified elsewhere 1 Other than sleeper class 2 includes services provided by a person located in a non-taxable territory to a person located in non-taxable territory by way of transportation of goods by a vessel from a place outside India upto customs station of clearance in India 3 If fuel cost is borne by the service recipient, then 18% GST will apply 4 The value of land is included in the amount charged from the service recipient

4 Services with 28% GST rate with full ITC Admission to entertainment events or access to amusement facilities 5 Services provided by a race club by way of totalisator or a licensed bookmaker in such club; Gambling Supply of Food/drinks in air-conditioned restaurant in 5-star or above rated Hotel Accommodation in hotels including 5 star and above rated hotels, inns, guest house, clubs, or other commercial places meant for residential or lodging purposes, where room rent is Rs.5000/- and above per night per room. GST rate and Compensation Cess to be the same as on supply of similar goods Transfer of the right to use any goods for any purpose for cash, deferred payment or other valuable consideration. Any transfer of right in goods or of undivided share in goods without transfer of title thereof. Comments The Council s decision on the services rate structure reflects the logic applied for goods, to stay close to the current effective rates. However, classifying services in different tax slabs may lead to classification challenges, resulting in unwarranted litigation. Applying the rate of 18% to banking, insurance and telecom services is likely to increase the cost of such services. While grandfathering the existing exemptions of various services is a positive step, some of them could be phased out over a period of time in line with the objective of GST. On the flip side, litigation around such exemptions under the current regime might continue even under GST. The development on the GST front gives a strong signal for the July 1 implementation, which now looks imminent. The industry should brace up for the last lap in next few weeks by assessing not only the impact of GST rates but also the overall strategy for transition into the new tax regime. Supply consisting of transfer of title in goods under an agreement which stipulates that property in goods shall pass at a future date upon payment of full consideration as agreed (value of leasing services shall be included in the value of goods supplied) 5 Including exhibition of cinematograph films, theme parks, water parks, joy rides, merry-go rounds, gocarting, casinos, race-course, ballet, any sporting event such as IPL and the like

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