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22 Nov 2017

Post GST, restaurant bills can trick you. Here's a guide

A foodie's guide to post-GST restaurant bills

Are you a foodie losing your appetite due to confusion pertaining to new prices of restaurant food under the GST regime? Do post-GST restaurant bills confuse you? You needn't worry further.

Although restaurant bills might come across as confusing under the new GST regime, they're not particularly difficult to understand when broken down into simple components.

We walk you through it.

In context

A foodie's guide to post-GST restaurant bills
Understanding the pre-GST tax regime

Earlier taxes

Understanding the pre-GST tax regime

In the pre-GST era, restaurants were burdened with multiple taxes - state, central, and other charges and cesses.

On every food and beverage bill, customers had to pay a value added tax (VAT), service taxes where applicable, and other cesses like Swachh Bharat cess, Krishi Kalyan cess etc.

All these have been consolidated under the umbrella of GST in the new tax regime.

Alcohol remains outside the ambit of GST

Alcohol has been exempted from the ambit of GST. GST applies only to food bills, while the older VAT applies to alcohol consumption. VAT cannot be applied to food bills, while GST cannot be applied to alcohol consumption.

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GST rates

Restaurant billing under the GST regime's revised rates

Initially, different GST rates were fixed for mainly two different categories - AC restaurants attracted an 18% GST, while non-AC restaurants attracted a 12% GST.

Under the new rates, all restaurants have to pay 5% GST without any input tax credit, while 18% GST applies to outdoor catering and restaurants in hotels with room tariffs above Rs. 7,500.

What is the input tax credit system?

The input tax credit (ITC) system allows restaurants to claim an offset for taxes paid on inputs (mostly raw materials) against taxes on their final products. According to the Federation of Hotels and Restaurants Association of India, ITC accounts for 3-4% of a restaurant's profits.

Understanding the Input Tax Credit system (ITC)


Understanding the Input Tax Credit system (ITC)

Under the new GST slab, the ITC system has been removed for restaurants on which 5% GST is applicable. Only restaurants paying 18% GST can use ITC.

Although smaller restaurants have had to push up menu prices to adjust for the same, it has made eating out cheaper for the customer who has to pay a lower net amount despite higher food prices.

How the new GST rates are favorable for the customer

Under the 18% GST rate, a customer would have to pay Rs. 118, for a food bill of Rs. 100. Under the no-ITC 5% rate, despite menu prices increasing by approximately 10%, a customer would have to pay Rs. 115.50 for a Rs. 110 bill.

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