The new indirect tax regime that subsumes multiple taxes and is aimed at reducing and eliminating the cascading effect has a bearing on all of the sectors across the economy. Restaurant and dining industry being no exception to GST rules.
Taxation on Dining Bill Before GST
Before July 1, 2017, dining bill attracted a number of state level and central level taxes in addition to different cesses that includee VAT, service tax, swachh bharat cess, krishi kalyan cess as well as service charge.
VAT ranged in between 12.5% and 14.5% while service tax also including cess applied at the rate of 6%. So, depending on the state, total indirect tax ranged in between 18.5% to 20.5%.
Post GST Indirect taxation on your food bill
AC and non-AC restaurants: Now with the nationwide implementation of GST, your dining bill would only add GST which though so is not so simple. Nonetheless, as per classification, dining out in AC restaurants shall attract GST @ 18% while non-AC restaurants who do not have the license to serve alcohol will tax food bill @ 12%.
CGST and SGST/UTGST in equal proportions: For further knowledge of the laymen, GST has been classified further into CGST or SGST/UTGST in equal proportions which imply the part of tax which goes to the concerned state or union territory and the part that goes to the centre.
VAT continues to be levied on alcohol consumption: Another interesting aspect concerning food industry is that alcohol consumption for humans is kept outside the purview of GST. So even today, alcohol consumption attracts VAT which is charged only on this particular component while the food bill will continue to attract GST. Also, none of the two taxes i.e. GST and VAT should be applied to each other.
Service charge: As per a government advisory, if the diner intends he or she can refuse to pay the service charge to the restaurant which is not a component of indirect tax but is a source of income for the hotel as a tip or gratuity received by the customer for hospitality services.
Nonetheless, GST is expected to be a boon for the industry with better and reduced tax rate commanded for consumers and availability of input tax benefit for them.