GST on Restaurants: An analysis

♠ GST (Goods and Service Tax) is a unified indirect tax levied on all goods and services except exempted goods and services

♠ Service sector covers various services like restaurants and hotels, transport, banking, insurance, entertainment and telecommunication services.

♠ The bulk of the services are under 18% tax rate.

♠ The rates have been increased on most of services but due to availability of Input Tax Credit (ITC), the effect of GST is not inflating on consumers.

GST and ITC on Restaurants

GST is applicable on “Supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or drink, where such supply or service is for cash, deferred payment or other valuable consideration, provided by a restaurant, eating joint including mess, canteen, whether for consumption on or away from the premises where such food or any other article for human consumption or drink is supplied, whether or not located in the premises of hotels, inns, guest houses, clubs, campsites or other commercial places meant for residential or lodging purposes”.

• Earlier, rate on restaurants was divided into 2 categories: Non-Air conditional restaurants and Air conditional restaurants.
• Also, restaurants were able to take the benefit of Input Tax Credit (ITC) and offset the tax paid on inputs against the tax payable to the government.

The GST Council in its 23^rd Meeting recommended key changes in GST rates applicable for restaurants which have the effect from 15^th November, 2017. The major changes were

• Cut-off in the tax rate from 18% or 12% to 5%.
• The facility of Input Tax Credit (ITC) is withdrawn.
• The distinction of Air conditional and Non- Air conditional restaurants is removed.

The council said the restaurants did not pass on the input tax credit (ITC) to customers and so the ITC facility is being withdrawn and a uniform five per cent tax is levied on all restaurants without the distinction of AC or non-AC.

Restaurants in starred-hotels that charge Rs.7,500/- or more per day room tariff will be levied 18 per cent GST but ITC is allowed for them.

GST Rate Chart as applicable to Restaurants

Notes:

♠ GST rate will not depend now onwards whether restaurant is Air conditioned or Non-Air conditioned, serving alcohol or not.

♠ Post amendment, restaurants would be divided into 3 categories

(i) Stand-alone restaurants

(ii) Restaurants in hotel premises

(iii) Outdoor catering

Composition scheme for Restaurants

• The government has introduced a composition levy under the GST law which provides a simple and easy taxing mechanism for small taxpayers to keep up with GST Compliance.
• Under this GST composition scheme, a small business having a Turnover of less than 100 lakhs can enrol for this composition levy and can pay tax at a predetermined fixed rate on the basis of their turnover.
• Small taxpayers enlisted under the GST composition scheme need not file monthly GST returns or pay monthly GST payments.

Conditions for registration under GST Composition Scheme

• The person engaged in the supply of food and drinks (other than alcoholic drinks) is not running a temporary or a seasonal restaurant.
• If the restaurant procures goods and services from an unregistered person, then the restaurant shall be liable to pay GST on a reverse charge basis.
• Any person engaged in the inter-state supply of goods cannot opt GST composition scheme.
• Composition taxable person (engaged in the restaurant business) cannot supply goods through an electronic commerce operator.
• Under the Composition Scheme, the person engaged in supply of food and drinks (restaurant business) is required to pay GST @ 5%e., CGST 2.5% and SGST 2.5%.
• Restaurants opting GST composition scheme will have to file GST Returns quarterly in Form GSTR-4 by 18^th of the following month following the quarter.