GST Applicability on Restaurants

Still holding yourself and your family from a weekend family dinner at a restaurant because of hefty GST rates on restaurants? No more holding now as here comes a relief.

The GST Council, in its 23^rd meeting in Guwahati, has slashed the tax rates from 18% and 12% on restaurants to just 5%. However, restaurants will not be able to take the benefit of Input Tax Credit. Let us understand GST on restaurants in detail.

Goods and Service Tax (GST)

Goods and Service Tax is a comprehensive, destination-based indirect tax that is levied on every value addition. GST, as an indirect tax has replaced many indirect taxes like Service tax, VAT, etc. The Goods and Service Tax Act was passed in the parliament on 29^th March 2017 and came into effect from 1^st July 2017.

GST for Restaurants

GST at a uniform rate of 5% will be levied on all restaurants. Earlier GST @ 12% was levied on food bill at non-AC restaurants and @ 18% on food bill at AC restaurants. Now all AC and non-AC restaurants, except starred hotels with the tariff of INR 7,500 or more and outdoor catering, will levy GST at a uniform rate of 5%. However, these restaurants will not be able to take the benefit of ITC (Input Tax Credit).

·         ITC or Input Tax Credit means that a manufacturer can avail the benefit of tax paid on input while paying tax on output.

Restaurants within starred hotels where the tariff is INR 7,500 or more and outdoor catering will be taxed @ 18% along with ITC.

Type of Restaurants	GST Rate	ITC
All restaurants	5%	No
Restaurants within starred hotels (room tariff <7,500)	5%	No
Restaurants within starred hotels (room tariff >7,500)	18%	Yes
Outdoor catering	18%	Yes

The GST Council also shifted as many as 178 items of daily use from top bracket of 28% to 18 %. The list of 228 items in the 28% bracket has been reduced to just 50 items.

Restaurants before and after GST

Earlier taxes like Service tax, VAT, etc., were a component of your food bill. Now all these taxes have been replaced by GST. If you see a food bill of pre-GST regime you will find following components:

·         VAT

·         Service tax

·         Service charge

Now a food bill under the GST regime will include the following components:

·         Service Charge (it will remain a part of your bill since it is not a tax and is charged by restaurants)

·         GST

Food bill pre and post-GST:

PRE GST   

                                                           

Particulars	Price
Shahi Paneer	200
Naan	50
Salad	50
Total	300
Service Charge@10%	30
Service tax@5.6%	18.48
KKC@0.2%	0.66
SBC@0.2%	0.66
VAT@14.5%	43.5
Total amount payable	393.3

 

POST GST

Particulars	Price
Shahi paneer	200
Naan	50
Salad	50
Total	300
Service Charge@10%	30
GST@5%
-CGST@2.5%	8.25
-SGST@2.5%	8.25
Total amount Payable	346.50

Reaction of Various Stakeholders

There has been a mixed reaction to this move of the government. According to Finance Minister, Mr Arun Jaitley, “since restaurants did not pass on the ITC benefit to customers, they will not be eligible for the benefit themselves”.

Some see this move as a key turner and believe that it will benefit the food industry. Many believe that dining out will turn cheaper due to reduced GST rates on both ACand non-AC restaurants.

Some see it as an opportunity to increase menu prices. They believe that ITC is the very essence of GST and its withdrawal will eventually lead to no effect on food bill since higher menu prices will make up for the loss of ITC.