As per The NRAI’s (National Restaurant Association of India) the Current size of the Indian food service industry is INR 247,680 crore and is projected to grow to INR 408,040 crore by 2018 at 11%. Post GST the Government has the opportunity to generate an additional collection of INR 17,000 – 26,000 crore through closer monitoring of tax levy and collection from the unorganized segment.
GST Council at its 14th meeting held on 19th May, 2017 at Srinagar, Jammu & Kashmir approved the rates for services under four slabs – 5%, 12%, 18% and 28% as compared to the current uniform 15% levy on all services which is subject to certain abatement and exemption.
In this article we have tried to put a detailed analysis of GST Rates for Hotels, Restaurants, Catering, Supply of Foods/drinks and its impact on such industries and to the ultimate consumers. Here are the highlights of new GST rates:
- Restaurants with a turnover of less than Rs 50 lakh will be levied a tax rate of 5 per cent.
- Non-ac restaurants will have a 12% tax rate.
- AC restaurants will have to shell out 18% tax.
- Also five-star restaurants will have to submit a luxury tax of 28 percent.
- Hotels, lodges with tariffs less than Rs 1,000 will be taxed at 5%.
- Hotel lodges with tariffs between Rs 1,000- Rs 2,500 will be charged 12% tax
- Hotel lodges with tariffs between Rs 2,500- Rs 5,000 will be charged 18% tax
SUPPLY OF FOOD/DRINKS IN A RESTAURANT – GOODS OR SERVICES ?
It has been a debatable issue over the year that supply of food and drinks in a restaurant is goods or services. Quite a lot clarification had been sought and even issued by the Government from time to time to get the things clear but still the myth continues.
As per the Article 366 (29A) (f) of the Constitution of India supply of food and drinks in a restaurant is considered as deemed sale of goods. But in Service Tax laws it is considered as composite/bundled service which leads to levy of both Service Tax and State VAT.
The thing is quite clear in GST regime which specifically provides that supply of food and drinks in a restaurant shall be treated as a supply of services. (Section 7(1)(d) read with Schedule II of the Central Goods and Services Tax Act, 2017).
IMPACT ON CONSUMERS
For Restaurant, Under the current legislation, there is a composite levy of both Service tax i.e 6%, as well as, Value Added Tax i.e 14.5% (Vary from State to State) on food and beverages served by hotels and restaurants which finally put burden of 20.5% on the pocket of ultimate consumers. However, some relief is there for Non-AC Restaurants supplying food and beverages, there shall not be levy of service tax on these restaurants.
Post GST, the scenario shall be completely different. As already it is clarified under GST Laws and discussed above that supply of food and drinks in a restaurant shall be treated as a supply of services. Hence, only GST shall be levied on such services @ 18% which saves around 3% as compared to above. But around 10% of extra burden on those people who love dining out at luxury restaurants in 5 star or above rated Hotels as such restaurants are in 28% tax bracket.
Further, as compared to earlier there is not any exemption for Non AC Restaurants and it has to provide 12% tax, but still it is going to be a little bit cheaper or the situation may be the same in few states which have 12% VAT rates as the element of VAT (vary from state to state) shall not be there.
Further, staying in a good hotel is going to be very costlier as the rate of tax has been doubled from 9% to 18%. Even Luxury Hotels of 5 star or above rated charging room rent Rs. 5,000/- or above will attract 28% tax.
IMPACT ON RESTAURANTS’ OWNER
The foremost and ultimate benefit for the Restaurants’ owners is that they are eligible to adjust the output tax liability with the credit of input on goods consumed. Presently they are following VAT Laws and Service Tax Laws and maintaining books and records, doing havoc compliances under both the laws but post GST they will get few relaxation from these huge task.
However, one biggest hurdle is still persisting for a restaurant’s owner who is supplying Alcoholic Liquor as the Alcoholic Liquor for human consumption is out of the purview of GST and existing state excise duty and VAT/CST will continue on these liquor which for sure affects the seamless transfer of credits.
Moreover, A Restaurant with a turnover of less than Rs. 50 Lakh can opt for Composition Scheme where there shall be levied a tax at the rate of 5% but they shall not be eligible to collect taxes or claim Input Tax Credit
The slab rate for Hotels has been put 18% maximum in comparison of existing 9% (After abatement) and 28% for luxury Hotels. Hotel Owners Association in Tamil Nadu demanded to maintain a 5 per cent slab instead of the proposed maximum of 18 per cent during the GST review meeting held on June 3 in Delhi.
Experts say that the proposed system and slab rate will not only affect the Hotels and Restaurants Industry but also hospitality and tourism industry as well as employment generation. Hope the Government will come out with some relief and exemption for Hotels and Restaurants.
COMPARISON OF SERVICE TAX AND GST RATES FOR RESTAURANTS AND HOTELS
| SL No. | List of Services | Service Tax Rates | GST Rates |
| 1 | Supply of Food/drinks in restaurant not having facility of air-conditioning or central heating at any time during the year and not having licence to serve liquor. | Exempt | 12% |
| 2 | Supply of Food/drinks in restaurant having licence to serve liquor. | Exempt* | 18% |
| 3 | Supply of Food/drinks in restaurant having facility of air-conditioning or central heating at any time during the year | 6% | 18% |
| 4 | Supply of Food/drinks in outdoor catering | 9% | 18% |
| 5 | Bundled service by way of supply of food or any other article of human consumption or any drink, in a premises (including hotel, convention center, club, pandal, shamiana or any other place, specially arranged for organizing a function) together with renting of such premises | 10.5% | 18% |
| 6 | Supply of Food/drinks in air-conditioned restaurant in 5-star or above rated Hotel. | 6% | 28% |
| 7 | Renting of hotels, inns, guest houses, clubs, campsites or other commercial places meant for residential or lodging purposes having room tariff Rs.1000 and above but less than Rs.2500 per room per day | 9% | 12% |
| 8 | Renting of hotels, inns, guest houses, clubs, campsites or other commercial places meant for residential or lodging purposes where room tariff of Rs 2500/ and above but less than Rs 5000/- per room per day | 9% | 18% |
| 9 | Accommodation in hotels including 5 star and above rated hotels, inns, guest houses, clubs, campsites or other commercial places meant for residential or lodging purposes, where room rent is Rs 5000/- and above per night per room | 9% | 28% |
| 10 | Services by a hotel, inn, guest house, club or campsite, by whatever name called, for residential or lodging purposes, having declared tariff of a unit of accommodation less than one thousand rupees per day or equivalent; | Exempt | Exempt |
* If restaurant is not having facility of air-conditioning or central heating at any time during the year.
(Author CS Prakash Shaw can be reached at csprakashsshaw@gmail.coom)
Author Bio
Dear Sir,
I am a consultant in excise and service tax after putting 10 years service in the department. My question is if any restaurant having ac in one part and non-ac in another part then whether separate tax rate will applicable to ac and non-ac sections simultaneously?
Sir
What will be the scenario if one person have hotel as well as restaurant in same premises