If you have visited any restaurant or cafe, post GST rollout on July 1, your bill would’ve looked different than what it would have looked earlier. So how does GST impact your restaurant outing? What does it mean for the restaurants business? Will you have to take a bigger hit on your pocket? Here is what GST will mean for restaurants and food outings:
The GST regime subsumes 17 indirect taxes and 22 cesses and implements a singular and simpler tax regime. According to industry research, the size of the Indian food industry is expected to grow by at least 10 percent each year for the next five years.
What does it mean for the common man?
Before GST was brought in, there were a number of taxes in your restaurant bill. Service Tax, VAT, Krishi Kalyan Cess and Swachh Bharat Cess were levied. A total tax of around 20.5% on you restaurant outing was applicable under the VAT regime. Restaurants used to levy 10% service charge. That could be ignored since it’s not a tax levied by the government. But, the restaurant owners would include the service charge in the bill and apply service tax on that service charge too. Since the levy of service charge is not banned and is made voluntary for customers, it can still be included in the bill. Therefore, in the new regime, the customers will pay a single tax on the total food bill and additional service charge if they wish to.
GST regime divides restaurants into two categories–air conditioned and non-air conditioned. In addition to that, there are sub-categories for establishments that are part AC, those that serve alcohol or don’t serve alcohol and five-star restaurants.
GST rates and how they apply:
Non-air conditioned establishments: The establishments that don’t serve alcohol will charge GST at 12% (Central GST at 6% and State GST at 6%) while the ones that do serve alcohol will charge 18% GST (9% CGST and 9% SGST).
Air conditioned, partly air-conditioned, five-star: These establishments will charge GST at 18% (9% CGST and 9% SGST) regardless of the alcohol availability for patrons. So this brings the tax on restaurant outings down from 20.5% to 18%.
GST is also beneficial for grocery shop owners
After GST, items like wheat, spices, oils etc are still taxed at 5% like the VAT regime. In the case of output tax liability, if you are a business owner, you have the opportunity to increase your working capital.
Here is how:
Pre-GST, on a bill of Rs 5,000, 14.5% VAT and 6% service tax levy meant a total output tax liability of Rs 1,025. Input tax credit (ITC) on VAT calculates to Rs 75 and no ITC on service tax. Hence the final output tax liability after ITC deduction comes out to be Rs 950.
Post GST, on the same bill of Rs 5,000, GST of 18% puts an output tax liability of Rs 900. However, ITC on GST, also calculated to Rs 75, brings the total output tax liability to Rs 875.
Hence, we can say that the new tax seems to benefit both the consumer and the business owner.