GST on Restaurants- All you needs to know

In this article we are going to see the changes in GST tax rates of Restaurants and impact of the same on our food bills i.e., moreover on our Stomachs.

The GST Council in its 23^rd Meeting held at Guwahati on 10^th of November,2017 recommended key changes in Tax rates and one of the most important one is cutoff in tax rates on Restaurants and CBEC also issued the notifications for the same to give effect to the revised rates from 15^th of November,2017.

Understand your bill:

First, let us try to understand our Restaurant bill, it is more important that you must be prepared to understand the components and taxes included in your Restaurant bill.

• Bill Amount : The value of the food items before levying taxes and directly goes into the pockets of the Restaurant owners, in technical terms it is referred as TAXABLE VALUE.
• Service Charge: It is Income to Hotels and not charged by the government. First of all note that service charge is not a tax at all, it is “ Totally Volluntary”. (More will be discussed in later part of this article)
• GST (Tax Component) : It is the tax component levied by Government and the same will be collected by the restaurants from customers and pays to the government.

Key changes in 23^rd GST Council Meeting:

The Council recommended the following changes in terms of tax rate:

• A uniform rate of 5% tax is levied on all the Restaurants without distinction of Air Conditioned or Non-Air Conditioned without the benefit of claiming Input Tax Credit (ITC).
• Takeway’s from Restaurants and E-Commerce operators will attracts 5% without the benefit of claiming Input Tax Credit (ITC).
• Restaurant in Starred hotels charging less than Rs.7500 per day room tariff will charge 5% GST but will not get any Input Tax Credit.
• Restaurant in Starred hotels charging 7500 or more per day room tariff will charge 18% GST and Input Tax Credit is allowed for them.
• Outdoor catering will continues to attract 18% GST and Input Tax Credit is allowed for same.
• The most important thing is GST rate not depends now onwards whether restaurant is Air Conditioned or Non – Air Conditioned, Serving Alcohol or not.

CBEC also issued Notification No. 48/2017-Integrated Tax (Rate), dated the 14^th November, 2017 so as to amend the earlier issued Notification No. 8/2017-Integrated Tax (Rate), dated the 28th June, 2017.

CBEC also issued Notification No. 46/2017-UTT (Rate), dated the 14^th November, 2017 so as to amend the earlier issued Notification No. 11/2017-UTT (Rate), dated the 28th June, 2017.

How Council decisions will impact our Restaurant Bills?

To know whether council decision is in favour of customers or not we should know the GST rates before 15^th of November,2017 and the rates are as follows:

• Restaurants without Air conditioning and/or not serving liquor will attract GST@ 12%
• Restaurants full or partial Air Conditioning and/or serving Liquor will charge GST@ 18%
• In both the above cases Restaurants are allowed to claim full Input Tax Credit.

To recap, the GST Council slashed rates on restaurants to a flat 5% from the previous 12% and 18% for Non-AC and AC Restaurants respectively, But at the same time, it decided to take away the benefit of Input tax credit.

“ Since they (restaurants) did not pass on the benefit they are not entitled to the benefit (any longer)”,finance minister Arun Jaitley.

• Let us look into a practical case how it will effect our bill before November 15^th and after November 15^th .

Abhishek & Vishwanth went to a Dominos Pizza Air-conditioned Restaurant on 11^th of November,2017 and eaten two pizza’s of Rs.150 each costs to total of Rs.300 and applicable tax rate is 18% ( 9% CGST + 9% SGST ) and the billing was done by the restaurant as follows:

Abhishek & Vishwanth went to a Dominos Pizza Air-conditioned Restaurant on 15^th of November,2017 and eaten two pizza’s of Rs.150 each costs to total of Rs.300 and applicable tax rate is 5% ( 2.5% CGST + 2.5% SGST ) and the billing was done by the restaurant as follows:

Here, if we see in the above examples they saved amount of Rs.39/-

Thus I can fairly conclude that new GST rates will bring reason to rejoice customers and it makes common mans plate more affordable.

Some Noteworthy Points:

SERVICE CHARGE:

This is charged by the restaurant for the services rendered to you. Since the amount is not a tax and goes to the restaurant, there are no guidelines provided by the tax authority and restaurants used to charge 5% to 20% on the value of the bill. But it is important to note that Service charge is NOT MANDATORY and decision lies with the customer customer whether to pay it or not. And GST will be levied separately on Service Charge.

Collection of service charge from customers by Hotels and restaurants is against law and consumer can complaint to Consumer Forum through online and recently Government established a cell to monitor consumer complaints, if you come across any such case you can dail-up to CBEC toll free number 1800225900 and your compliant will be registered.

Whether GST included in MRP or not?

The answer is Yes, The government has made it clear that the MRP is the maximum price of a product to be sold in retail . GST includes in the MRP and you are not liable to pay even single paise extra over and above MRP even for water bottles, Cool drinks etc., at restaurants.

There are several laws including Monopolies and Restrictive trade practices Act, MRTP Act, Essential Commodities Acts and the Consumer protection act which makes selling a product over and above MRP is a punishable offence for unfair trade practice and even under the new tax regime, selling of a product over and above MRP is a violation of the anti-profiteering clauses of the GST Act. This may lead to cancellation of registration of the retailer.

In my next article I will explain about where to compliant and how to complaint incase of violation of laws like charging of GST Over and above MRP, Compulsory levying of Service Charge by restaurants, in a step-by-step procedure.

Be Smart !! Eat Smart !!!.

Yours,

B Vinay Reddy

cavinayreddy@icai.org

Jai Hindh !!

Disclaimer: The views expressed in this article are solely those of the author and do not criticize anyone intentionally in general or particular.

Also Read-