As under the earlier tax regime, initially, at the time of introduction of Goods and Service Tax (GST), the GST rates on restaurant services were based on the availability of AC or liquor licence, and further, the advantage of the input tax credit was entirely made available to the restaurant owner. However, due to the false act of the restaurant owner of collecting the GST at higher rates and non-passing on the benefit of the input tax credit to the customer, the entire tax structure of the restaurant service underwent a change from November, 2017.
Present article highlights both the tax structure i.e. the initial tax structure and the present tax structure as applicable to the restaurant service as well as the applicability of the composition scheme.
INITIAL TAX STRUCTURE OF THE RESTAURANT SERVICE UNDER GST –
With the implementation of Goods and Service Tax, from 1st July, 2017, as prevailing under the earlier tax regime, the restaurants were bifurcated into the category of AC restaurants and Non-AC restaurants. GST payable on the food being served by the AC restaurants was higher i.e. 18%, however, GST payable on the food being served by the non-AC restaurants was comparatively lower i.e. 12%.
However, the entire tax structure of the restaurant service underwent a change from November, 2017. The reason for the change in the tax structure and the current tax structure is being explained in the below paras.
PRESENT TAX STRUCTURE OF RESTAURANT SERVICE UNDER GST –
In the 23rdGST council meeting, the entire GST levy on the restaurant service underwent a transformation thereby benefiting the customer at large. The GST rate was slashed down from 18% to 5%, however, with the reduced in GST rate the input tax credit (ITC)benefit was withdrawn from the restaurant owner.
The main reason behind the cutting down of the rates and non-availability of ITC was that the GST council had observed that the benefit of input tax benefit (ITC) available to the restaurant was not being passed on to the customers. The restaurant owners used to charge GST at higher rates without passing on the benefit of ITC and hence the same added to the burden of customers.
The above cut down of the GST rate and non-availability of ITC was summarized as ‘universal composition scheme’ in the restaurant sector by the Finance Minister of India Mr. Arun Jaitely, at the time of presenting the new tax structure.
Present rate structure of the restaurant service is being summarized hereunder –
1. All standalone restaurants (whether AC restaurant or non-AC restaurant) – 5% without the benefit of ITC.
‘Restaurant’ includes 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. Further ‘Restaurants’ also includes all the restaurants other than those restaurants which are located in the premises of the hotels, inns, guest house, clubs, campsites or other commercial places meant for a residential or lodging purpose which is having declared tariff.
2. Food parcels / takeaways – 5% without the benefit of ITC.
3. Restaurants in hotel premises having room declared tariff of less than INR 7500 per unit per day – 5% without the benefit of ITC.
4. Restaurants in hotel premises having room declared tariff of INR 7500 and above per unit per day – 18% with the benefit of full ITC.
5. Outdoor catering – 18% with the benefit of full ITC.
Declared tariff includes charges for all the amenities provided in the unit of accommodation (given on rent for stay) like furniture, air conditioner, refrigerators or any other amenities, but without excluding any discount offered on the published charges for such unit.
The above changes were made effective from 15th November, 2017.
COMPOSITION SCHEME UNDER RESTAURANT SERVICE–
Benefits of composition scheme are available to the restaurant service provider. Following are the list of basic conditions which one needs to fulfill in order to opt for composition scheme –
CONDITIONS FOR OPTING FOR COMPOSITION SCHEME –
1. Total turnover should not exceed INR 1.5 Crore (INR 1 Crore in case of special category States).
2. The person engaged in the supply of food and drinks is not running a temporary / seasonal restaurant.
3. The restaurant cannot undertake any inter-state supplies of goods.
4. Restaurant service provider opting for composition scheme is not allowed to supply goods through e-commerce operator.
If the restaurant owner opts for composition scheme than he is required to pay GST @5% and file GSTR-4 return on a quarterly basis.
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