GST Impact on Restaurants, Impact of GST on Restaurants services: Impact of GST on Food Services & Restaurant Business 2024. There is confusion and anxiety among the owners of Restaurants with regard to the liability of tax under CGST Act and SGST Act. In this article we provide complete information regarding Tax liability of Restaurants under Service Tax, Tax liability on Restaurants under GST regime & Details for Composition Scheme under GST regime for supply of Restaurant services etc….now check more details from below….
GST Impact on Restaurants
Taxability of Restaurants under Present laws with respect to the State of Madhya Pradesh
The taxability of VAT under MPVAT Act on the sale of food provided in a Restaurant can be summarized as under:-
- VAT is leviable @5% on cooked foods and snacks provided by a restaurant.
- VAT is leviable @20% on Cold drinks and @14% on other non food items.
- Entry Tax is also payable @1% on raw material and incidental goods used in the manufacture of cooked food.
- Luxury Tax is also payable by outdoor caterers @10% under LEAT Act with the deduction of sale price on which tax is liable to be paid under MP VAT Act with the exception of Hospitals and Educational Institutions.
- Tax on sale of alcoholic liquor to customers is levied @ 5% under MP VAT Act.
- Similar provisions with regard to levy of tax on sale of cooked food by restaurants in other states as well.
Composition Scheme under MP VAT Act
- The dealer opting for composition u/s 11 of MP VAT Act is liable to pay composition money @3% on the turnover of cooked food manufactured without the facility of input tax rebate.
- No input tax rebate is available to composition holders u/s 11.
- The manufacturers u/s 11 have the benefit of buying goods taxable @5% from unregistered dealers without the liability of payment of purchase tax.
- Composition under VAT regime is available to the dealers whose turnover per annum is upto Rs.1 crore
- Similar provisions exit in different States in respect of composition provisions to restaurants.
- There is also provision in some States to grant licence to restaurants at nominal rates on advance payment of licence fee.
Tax liability of Restaurants under Service Tax
The Service Tax liability on Hotels and Restaurants can be summarized as under:-
- There is no Service Tax on services provided in a Hotel.
- Service Tax is leviable @15% on services provided by Air Conditioned Restaurants with the abatement of 30%.
Tax liability on Restaurants under GST regime
- Schedule II u/s 7 of CGST Act incorporates activities to be treated as supply of goods or supply of services.
- As per clause 6(b) of Schedule II, Restaurant services are specified as composite supply and have been defined as follows:- “Supply by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (other than alcoholic liquor for human consumption), where such supply or service is for cash, deferred payment or other valuable consideration”.
- As per clause 6(b) of Schedule II, tax under GST regime will be leviable as supply of services, not as supply of goods @18% on transaction value i.e. the consideration paid or payable.
- No tax will be payable on the goods supplied by the Restaurants to the customers as Restaurant services have been specified as composite service
- The supplier of Restaurant services will be entitled to input tax rebate on the inputs, capital goods and input services used by them in the course or furtherance of business.
- As such Restaurant service supplier shall pay tax @18% on supply of services in place of 5% which is being paid under VAT regime.
Composition Scheme under GST regime for supply of Restaurant services
- As per Section 10(1)(b) of CGST / SGST Act, the Restaurant service provider whose aggregate turnover in a previous financial year does not exceed Rs.50 lacs shall pay tax @2.5% as CGST and 2.5% as SGST totalling 5%, which is as under:- “(b) two and a half per ,cent of the turnover in State in case of persons engaged in making supplies referred to in clause (b) of paragraph 6 of Schedule II”.
- The composition Restaurant suppliers will not be entitled to input tax credit.
- The composition u/s 10 of CGST Act/ SGST Act is subject to provisions of Section (3) and (4) of Section 9. It means that composition persons will pay tax at full rate on reverse charge basis, if they get supplies from notified suppliers of goods / services and from unregistered persons. Restaurant Service providers have to buy the goods and services from the unregistered persons in the course of nature of services provided by them. This will result in unnecessary burden on restaurant service providers on unregistered inward supplies .This will make the provisions contain in Section 10 of GST laws impractical and redundant while the intention odof the Council is to give the relief to small restaurants and dhawas whom cannot keep the complicated accounts and documentation and to reduce the burden of taxation on restaurant service supplies
Conclusion
Restaurant service suppliers will pay tax @18% on services provided while they are paying tax @5% under VAT regime with the benefit of input tax rebate. Only those registered persons who opt for composition u/s 10 will pay tax @5% on aggregate turnover under GST regime, that too without the benefit of Input Tax Credit. As the restaurant owners have to make a lot of supplies from unregistered persons, therefore in accordance with Section 9(4) of GST laws, they shall be liable to pay tax on such supplies from unregistered persons at full rate under reverse charge mechanism ( RCM).This will cause real hardship to composition holders restaurant. Also the limit of Aggregate Turnover of Rupees 50 Lakh for composition is too low to get the real benefit. Under VAT laws, restaurants are enjoying higher limits with lower tax rates.Also in the VAT regime, composition holders not liable to pay purchase tax on purchases made from unregistered persons.
Restaurant service providers and hoteliers are in for real hardship under GST regime with higher burden of taxation on outward supplies. There will also be issues with regard to compliance under GST regime where the Supplier has to maintain accounts and documentation meticulously to claim Input Tax credit and also comply with the different provisions of the GST laws.
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