Impact of GST on Restaurants post 23rd GST council meeting

The Goods and Services Tax (GST) post its rollout has brought cheers to the restaurant industry. It replaced the erstwhile Service Tax and VAT and had been capped at 18%.

As per NRAI India Food Services Report (IFSR) 2016, Indian food services market stood at Rs. 309,110 Cr and the Indian Restaurant sector would create direct employment of 5.8 mn and a major contribution by way of taxes to the Indian economy.

Current Tax structure on food served at Restaurants (AC) before the Council meeting:
GST Impact on restaurants

The 23rd GST council meeting opined that the Restaurants are not passing the benefits of input tax credit (ITC) to customers, by way of reduction in prices. Hence it decided on 10th November 2017 to slash the GST rates by a maximum of 13%. Accordingly, Notification 46 was issued on 14th November 2017 to give the due effect. This would make tax rate uniform for AC and non-AC restaurants that are not covered under the composition scheme.

EXEMPTIONS / CHANGES IN GST RATES / ITC ELIGIBILITY CRITERIA

1. All stand-alone restaurants irrespective of air-conditioned or otherwise will attract 5% GST without ITC.
2. Food parcels (or takeaways) will also attract 5% GST without ITC.
3. Restaurants in hotel premises having room tariff of less than Rs 7500 per unit per day will attract GST of 5% without ITC.
4. Restaurants in hotel premises having room tariff of Rs 7500 and above per unit per day (even for a single room) will attract GST of 18% with full ITC.
5. Outdoor catering will continue to be at 18% with full ITC.

Please find the comparative table with the original and revised rates along with the impact on Customers as well as Restaurants post 23rd GST council meeting.

Original GST rates. Category Revised Rates from-14th November 2017 Category Impact

6% – CGST

6% – SGST

ITC is available.

  • Restaurants which are not air-conditioned
  • Restaurants not serving alcohol

2.5% – CGST

2.5% – SGST

ITC is not available.

  • All standalone Restaurants including those air conditioned as well as serving alcohol.

  • Restaurants in hotel premises of room tariff < Rs.7,500

  • Food Parcel/ Take away

  • Customers would benefit by 7% reduction in price, particularly in case of small restaurants and by 13% in case of food served in hotel premises of tariff < Rs.7,500

  • Small Restaurants & Budget Hotels would benefit due to revised rate as they already claim little/No ITC on food, rent etc. Revised rate of 5% without ITC would boost their Sales.

  • Food parcel turns cheaper by 13%.

9% – CGST

9% – SGST

ITC is available.

  • Restaurants which are air-conditioned
  • Restaurants which are serving alcohol
  • Outdoor Catering
  • Food Parcel/ Take away

9% – CGST

9% – SGST

ITC is available.

  • Restaurants in hotel premises of room tariff of Rs 7,500 and above

  • Outdoor Catering

  • Customers visiting an air-conditioned restaurant would benefit by 13% reduction in bill

  • Luxury Restaurants may not benefit from revised rate of 5% without ITC

  • Rate remains unaffected in case of restaurants in Luxury hotels & Outdoor Catering

Thus the revised rates as per the 23rd GST council meeting would help Restaurants to rationalize tariffs across India with a major benefit to the consumer pockets. But denial of Input tax credit to Luxury restaurants may lead to double taxation and inflation, with increased operational costs.

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