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This article brings to you the results of impact analysis on something which is very near and dear to us; or, rather to our stomachs –the restaurant and food industry.
Here we will try to explain how the restaurant bill will look under GST and what are its implications for the end consumers, the owners and the overall industry.
According to the National Restaurant Association of India’s 2019 India Food Service Report, the size of the Indian food service industry was 1,48,353 crore in 2018-19 and is projected to grow to Rs 2,57,907 crore in 2022-2023 with a CAGR of 15%.
This growth is further fueled by the growth of the great Indian middle class. Rapid urbanization, growing awareness of western lifestyles, more women joining the workforce, and higher disposable income were some of the factors that contributed to the growth of the restaurant industry. As a result, we find ourselves waiting in queues in most of the restaurants during the weekend.
As an end consumer, we hardly pay attention to our food bill in these restaurants and most of us are not even aware of the components included in it. If you revisit your food bill from the pre-GST fine-dine experience, you’ll find Service Tax, Service Charge, VAT being added over and above the food value.
First, let us understand the components of the bill:
However, the rates under GST are vastly different from what you would find before the tax policy change. Let us look at these changed rates below.
S No | Type of Restaurants | GST Rate |
1 | Railways/IRCTC | 5% without ITC |
2 | Standalone restaurants | 5% without ITC |
3 | Standalone outdoor catering services or food delivery service | 5% without ITC |
4 | Restaurants within hotels (Where room tariff is less than Rs 7,500) | 5% without ITC |
5 | Normal/composite outdoor catering within hotels (Where room tariff is less than Rs 7,500) | 5% without ITC |
6 | Restaurants within hotels* (Where room tariff is more than or equal to Rs 7,500) | 18% with ITC |
7 | Normal/composite outdoor catering within hotels* (Where room tariff is more than or equal to Rs 7,500) | 18% with ITC |
*This covers individuals supplying catering or other services in hotels (having room tariff of Rs 7,500 or more) and not any hotel accommodation services.
In the GST regime, the Service Tax and VAT amount will be subsumed into one single rate, but you may still find service charge doing rounds on your food bill. Below we have provided a high-level comparison of how your food bill will look pre and post-GST:
So, at a standard rate of 18% under GST, a consumer will save about Rs. 55 on a transaction value of Rs. 2,200. Here, we have assumed that VAT is applicable at 100% of the value without any abatement. Furthermore, if we see the effective rate of tax under VAT regime, it sums up to around 20.5% which will come down to 18%.
Particulars | Billing under VAT regime | Billing under GST regime |
Total Bill | 5000 | 5000 |
Output Tax | ||
–VAT @14.5% | 725 | |
–Service tax@6% | 300 | |
GST @5% | 250 | |
Total output tax liability | 1025 | 250 |
Input credit | ||
—VAT ITC (no ITC on ST) | 75 | |
—GST ITC | – | |
Final Output tax liability | ||
–VAT | 600 | |
–Service Tax | 250 | |
–GST | 300 |
Now in the above example, the total amount payable to the tax authorities under the current regime sums up to Rs.950. However, under GST, net outflow from the pocket will be Rs.250, thanks to the reduced rates, thus his working capital will be enhanced.
Thus, we can fairly conclude that GST will bring reasons to rejoice for both consumers and restaurant owners under the new regime and we will have more reason to explore the new food joints in our neighbourhood and pamper our taste buds.