GST on Restaurants

GST is also applicable to restaurant bills.  Under GST the rate of GST on restaurants is 12% in case of non-air conditioned restaurants and in case of air-conditioned restaurants, the rate is 18%. The tax rate is a bit lesser compared to the erstwhile tax regime where VAT was charged at 14.5% and 6% as Service Tax thereby making it 20.5%. Under GST is 18%.

As Input tax credit is available in GST on the purchase of cutlery, furniture and food items where it was not available in the previous regime specifically for the Central Excise taxes paid by them.

Many of us were expecting that under GST we will not have a differentiation between the air-conditioned and non-air conditioned restaurants but we had the same legacy for some reason or the other. Many representations have been received on this and the government has formed a Group of Ministers to look on the same under the leadership of Assam State Finance Minister, Shri Himanata Biswas. The GOM has recommended a lower rate for restaurants and the decision was announced in the 23rd GST Council Meeting. Notification No. 46/2017-Central Tax (Rate), dated 14-Nov 2017 with effective from 15th Nov 2017. As per the said notification, the tax rate now is 5% if the restaurant does not claim input tax credit. Technically, the amount of input tax credit claimed is less compared to the other sectors and the amount charged in case of hotels is below Rs 7,500 per day. The same is explained in the said notification as

For the removal of doubt, it is hereby clarified that, 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, other than those located in the premises of hotels, inns, guest houses, clubs, campsites or other commercial places meant for residential or lodging purposes having declared tariff of any unit of accommodation of seven thousand five hundred rupees and above per unit per day or equivalent shall attract central tax @ 2.5% without any input tax credit under item (i) above and shall not be levied at the rate as specified under this entry.”

The restaurant owners have to take a call of taking input tax credit and levying a tax of 18% or 12% or levy 5% without claiming ITC. For this, they have to do a cost-benefit analysis for the same. There also a view being expressed that some of them are willing to forego the input tax benefit but levy a tax of 5% and increase the prices marginally so that the customers are happy and their footfalls are not impacted. It is the ultimate decision of the service provider but at the end for the consumer or the common man it is going out to be cheaper.

Any views or opinions represented above are personal and belong solely to the author and do not represent those of people, institutions or organizations that the owner may or may not be associated with in professional or personal capacity unless explicitly stated. Any views or opinions are not intended to malign any religion, ethnic group, club, organization, company, or individual.

The Author is an SME, Speaker, Author, Advisor on GST and he is founder of India-gst.in . He has written three books titled “Roll Up Your Sleeves for GST, The Impending Tax Reform in India”, “GST” & Good and Simple Tax – GST For You”” and can be reached at mallikarjunagupta@india-gst.in

GST on Restaurants- All you needs to know