The GST Council on Saturday fixed a 5 per cent tax rate on small hotels and restaurants and approved draft of key supporting legislations to enable rollout of the new indirect tax regime from July 1.

The all-powerful Council approved the final draft of Central GST (C-GST) and Integrated GST (I-GST)+ and will take up for approval the State-GST and Union Territory-GST (UT-GST) laws at its next meeting on March 16.

The C-GST, which will give powers to Centre to levy GST on goods and services after union levies like excise and service tax are subsumed, and I-GST that is to be levied on inter-state supplies, will go to Parliament for approval in the second half of the Budget session beginning March 9, Finance Minister Arun Jaitley said.

The S-GST, which will allow states to levy the tax after VAT and other state levies are subsumed in the GST, will have to be passed by each of the state legislative assemblies. UT-GST will also go to Parliament for approval.

Jaitley said the model GST Law will have a clause to enable levy of up to 40 per cent tax (20 per cent by the Centre and an equal amount by the states) but the effective tax rates will be kept at the previously approved levels of 5, 12, 18 and 28 per cent.

"The rates will be what has been decided by the Council. There won't be a higher rate of taxation. But the cap rate in the legislation is always put at a higher level to leave a headspace, just as in the Customs Act you have a difference between the bound rate and applied rate. So the applied rate is going to be what the council has decided," Jaitley said.

This is being done to obviate the need for going to Parliament in case the levy is to be raised on certain goods and services.

This will also help in a scenario where the cess on de-merit goods being proposed to compensate states for loss of revenue from GST, is to be merged with the tax rate itself, he told reporters after the meeting.

"As it looks like, it looks on track. Hopefully the laws would be before Parliament this session and subject to the Parliament approving them, July 1 this year now optimistically looks like the possible date for GST
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The Council, headed by Jaitley and comprising representatives of all states, decided to levy a 5 per cent GST (2.5 per cent by Centre and 2.5 per cent by state) on small hotels, restaurants and dhabas with an annual turnover of up to Rs 50 lakh.

Revenue Secretary Hasmukh Adhia said there were demands that restaurants should be included in the composition scheme, particularly those with less turnover. "So the Council decided that there would be a composition scheme for restaurants up to a turnover of Rs 50 lakh and the rate for them is 5 per cent. So the remaining restaurants, they will come in the regular service tax rate," Adhia said.