In a move that would make food bills lighter, the goods and services tax or GST on food served in restaurants has been revised downwards to flat 5%.
Earlier, the rate of GST on food was 12% in non-air conditioned (non-AC) restaurants and 18% for food served in AC restaurants.
Effective from Wednesday, 15 November, the new rate is applicable to both AC and non-AC food outlets. Restaurants in luxury hotels are, however, exempted from the revision and will continue to levy the same GST.
Announcing tax revision on food, the Union Finance Minister said that the government is withdrawing the input tax credit (ITC) benefit provided to the restaurants as they failed to pass it onto the customers and hence levying a uniform tax of 5% on all types of restaurants.
For restaurants, who pay tax on both input (say raw material for cooking) and output (food served), there is a provision to reduce the tax already paid on inputs, while paying tax on output. The tax they pay on input products becomes input tax credit. Under the GST act, they can claim input tax credit while paying tax on the output products and should pass the benefit to the customers.
While restaurants have been active in claiming ITC, they failed to pass their benefit to the customers.
With regards to ITC, restaurants in luxury hotels charging Rs.7,500 or more per day for a room will levy 18% tax and are eligible for ITC. On the other hand, star hotels that charge less than Rs.7,500 per room will levy 5% tax on food but will not be eligible to claim ITC.
The revision is expected to bring down food bill and encourage people to dine-out, resulting in revenue boost to restaurants, who are reportedly having a tough time in the post-GST era.
Report non-implementation of revised GST
If you find any hotels or restaurants still charging 18% on your food bill, you can report the same to Central Board of Excise and Customs (CBSE). You can reach CBSE through their helpline numbers 1800-1200-232/011-26174191 or send an e-mail to [email protected].gov.in.
Read more GST news here.