GST Course

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How many times you visited a Restaurant and got amazed by the taxes there on and not amazed by the actual amount of bill. You might have found following taxes in the restaurant that would have daunted you most of the times (Not sure about you but they have definitely frustrated me).

a. Value Added Tax (Charged by State) - Statutory in nature
b. Service tax (Charged by Central) - Statutory in nature
c. Service Charges (Charged by the HOTEL OWNER) - Non statutory in nature

Recently Service charges have been there in media for all the good reasons and the same is also not of a statutory in nature so let's not discuss the same.

Talking about the other taxes, all of them are charged by the government only and nothing much the restaurant owner can do about it.

GST is making its way most probably on July 1st 2017 which will demolish the numerous taxes applied at a time on hotel industry. Since the GST Rate schedule is out in public domain, lets understand GST applicable from Restaurant owner's point of view and also the amount of cost you will have to bear as far as indirect taxes applicable in your hotel bills are concerned.

Few General provisions applicable for all the cases:

1. Restaurant service is considered as a deemed service even though it includes supply of goods.

2. There is a basic threshold limit of Rs. 20,00,000 is applicable in all the cases.

3. Composition Scheme is available for Restaurant services provided the annual turnover does not exceed Rs. 50 Lakhs.

(Composition scheme under GST has been criticized for the thresh hold limit as (Rs.50 lakhs / 365 days) Rs. 13,700 is very small per day limit considering the fact that most of the smallest of the restaurant in town are having an average counter of Rs. 15,000.)

We will understand all the GST rates applicable to Restaurants with the help of examples (All the names used herein are fictitious in nature).

1. 'Taste of Gujarat' is a Non AC restaurant of Vadodara famous for their mouth watering Gujarati Thali. They also don’t have a license to serve liquor.

Currently these categories of restaurants which do not have AC in their hotels are exempted from Service tax. Only VAT is applicable as per the state provisions of VAT.

Option 1 - Regular Scheme:

Tax Rate Applicable under GST: 12 % (6% SGST + 6% CGST) to be charged additionally in the bill.

Input tax Credit: Full Input tax Credit is available in respect of goods and services used for providing output service.

Option 2 - Composition Scheme (Lump sum Scheme):

Tax Rate applicable: 5% (2.5% SGST + 2.5% CGST) NOT to be charged additionally in the bill.

Input Tax Credit: NO Input tax Credit is available for any input.

Opinion:

According to my opinion 'Test of Gujarat' Should opt for composition scheme if possible (Turnover is less than Rs. 50 lakhs). The reason being most of the input items are zero rated goods in case of restaurant. E.g. Grain, Rice or other such raw material. So the input tax credit benefit which is available under regular scheme is lost due to zero rated items.

2.  If in case 'Taste of Gujarat' have Air Conditioner or heater in their restaurant Or They have License to serve Liquor (Don't be surprise, Even in Gujarat there are restaurant with Liquor license).

Currently these categories of restaurants are required to pay service tax @6% and No ITC is available there on. VAT is applicable as per the state provisions of VAT.

Only the rate of tax under Regular Scheme will increase to 18%. Rest everything will remain as per the Case-1.

3. In most of the major occasion in Vadodara, you will find 'Best in Taste Caterers' - The delicious outdoor caterers. Especially all the live counters with cocktails in between, satisfy most of my taste buds.

Currently Outdoor catering is taxed at 9% of Service tax and VAT as per State provisions of respective state.

Tax Rate Applicable under GST: 18 % (9% SGST + 9% CGST) to be charged additionally in the bill for intrastate. For interstate 18% of IGST to be charged.

Input tax Credit: Full Input tax Credit is available in respect of goods and services used for providing output service.

No composition (Lump sum) Scheme is available for Outdoor catering.

4. 'Hotel Vadodara Palace' is one of the finest Five Star Hotel in Vadodara. They are also having their Restaurant in the hotel itself.

Currently these categories of restaurants are required to pay service tax @6% and No ITC is available there on. VAT is applicable as per the state provisions of VAT.

Tax Rate Applicable under GST: 28 % (9% SGST + 9% CGST) to be charged additionally in the bill.

Input tax Credit: Full Input tax Credit is available in respect of goods and services used for providing output service.

Though Composition Scheme is also available for five star Hotel Restaurant however they are most unlikely to be eligible for the scheme as the maximum turnover limit is Rs. 50 lakhs in the scheme. If in case they are eligible the scheme is same as Case-1 as mentioned above.

Summary of above:


Nature of Restaurant

Non AC, Without Liquor License

With AC or Heater or Liquor License or All

Outdoor caterers

Restaurant In a Five star Hotel

Rate of GST

12%

18%

18%

28%

Whether Input tax credit available

Yes, on all input

Yes, on all input

Yes, on all input

Yes, on all input

Whether composition (Lump sum) scheme available

Yes

(No Input Credit, 50 lakh turnover limit)

Yes

(No Input Credit, 50 lakh turnover limit)

No

Yes

(No Input Credit, 50 lakh turnover limit)

Rate of lump sum scheme

5%

5%

NA

5%


The author can also be reached at camayur2@gmail.com.


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Category GST, Other Articles by - Mayur 



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