GST Trolls on Restaurants: Uniform 5% Tax Without ITC Benefits

Since its inception in India, Goods and Services Tax (GST) has made a severe impact on the various industry. The recent taxation regime levied 12% GST for non-AC restaurants and 18% GST on AC restaurants. In its 23rd meeting, GST Council has slashed down tax rate to uniform 5% without input tax credit (ITC) benefits. While welcoming the tax reduction, the restaurateurs have shown discontent with the Council’s decision of withdrawing the ITC benefit.

Previously (GST with ITC benefits), the restaurants were allowed to adjust the tax that they have to pay on their transactions with the tax they have paid while purchasing inputs. Meanwhile, as per the current levy, the restaurants have to bear the burden of input costs also along with the tax that they have to pay on its transactions.

However, the uniform 5% GST will not be applicable to the restaurants in hotels that charge Rs 7,500 or more per day for room tariff. Such restaurants have to pay the existing GST rate of 18%; however, they will have the benefits of ITC. Outdoor catering also falls under the same tax bracket.

According to tax panelists, abatement of GST tax rate on restaurants may not reflect in restaurant bills due to the presence of ITC. As there is no tax credit for restaurants, the business operators are unlikely to reduce the food price. They are in a dilemma whether to endure the input cost or to impose it on to customers by increasing the food prices on the menu.

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