Clarification on rate of GST on restaurant service. Eating out would get cheaper as the GST Council slashed rates on Friday for both air conditioned and non-air-conditioned restaurants to 5% without input tax credit. Restaurants to levy 5% GST from today, food bills likely to come down
GST on restaurant service
The GST Council had previously pegged GST rates for air-conditioned eateries and those with liquor licences at 18%, and non-air-conditioned restaurants at 12%. However, the move does not apply to restaurants located inside hotels with tariffs of Rs 7,500 and above and outdoor catering, which will continue to be charged at 18% with the benefit of input tax credit.
The move looks like a win-win for consumers, and some industry association members welcomed it, while others were apprehensive about its feasibility given the removal of input tax credit and said prices might go up as a result.
The Federation of Hotels & Restaurants Association of India (FHRAI) welcomed the GST Council’s decision to cut tax rate for restaurants to 5%. A delegation led by FHRAI President Garish Oberoi had earlier met with the GST Council members in Guwahati and had requested them to either bring down the GST rate on restaurants to 12% with input credit or 5% without input credit.
“We are extremely thankful to the government for making these much required changes in the GST regime. This will help restaurants across India rationalise tariffs,” said Oberoi. National Restaurant Association of India Vice-President Rahul Singh said denying the input tax benefit goes against the very grain of GST and will push up prices by around 10% on the menus.
“So, effectively the consumer pockets will get a marginal benefit, and not as it seems,” he added. Restaurateur Zorawar Kalra, MD of Everstone-backed Massive Restaurants which runs restaurant chains like Farzi Cafe, said while the move is great for the consumers and will improve spending and increase the propensity of eating out, it remains to be seen if the move will positively impact the bottom line of the business.
“The removal of input tax credit is a big problem as costs for the restaurants which includes rents etc will go up. We have to pay GST for all this but we won’t get it back. The margins could get significantly constrained. For a business, it remains to be seen if the volumes will offset the lack of input tax credit,” said Kalra.
He said that this might become unsustainable for some Quick Service Restaurants (QSRs) which serve economical meals and might lead to increased costs in some cases.
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