According to a popular survey of middle class population, it was found that a major portion of income is spent on food and dining out. While being a foodie is trending nowadays, people’s love for eating in restaurants is traditional. Let us see how GST affects the masses favourite activity
In this article we would shed light on the taxes that people pay while dining out. What were the taxes prior to 1st july ? And what are the taxes to be paid now ?
We would understand this with the help of our friend Timmy.
Timmy is a big foodie and loves to get his hands on every food item there is. If there is any new restaurant or hotel coming up in town, Timmy will always be the first person to go there.
But nowadays Timmy is perplexed. He finds that prices of food items and dishes have changed all of a sudden. This was bothering Timmy and he was losing hid apetit.
I could not see Timmy sad. So, I decided to solve his problems. Upon asking, and then listening to his woes, I instantly knew the solution.
Solution to Timmy’s was, the newly introduced GST.
Earlier the restaurant sector was burdened with multiple state and central taxes, charges, and various cesses. On every food and beverages bill, a diner used to pay value added tax (VAT), service tax, various cesses like Swatch Bharat, Krishi Kalyan, and a service charge.
With the implementation of the GST, a diner’s bill should simply show only GST. Also, under the new system, eateries are broadly divided into two categories: Non-AC and AC restaurants. Dining out in air conditioned restaurants will attract a tax of 18 per cent, while non-AC restaurants (without a license to serve liquor) will levy 12 per cent GST on a food and beverage bill.
Even though the GST is being touted as ‘one nation, one tax’ it has two parts called CGST and SGST/ UTGST which ar levied in equal proportions.
One that goes to the respective state/Union Territory and the other that goes to the central government.
Further, alcohol for human consumption has been kept outside the ambit of GST. This means that in your dining bill, apart from the new levy of GST, you may still see the old tax (VAT) mentioned.
But VAT is applicable only on the alcohol component of the bill and GST is applicable on the food portion. Also, none of the taxes should be applied to each other.
For eg, IF you go to some restaurant to eat and drink. You order food worth Rs 500 and alcoholic drinks worth Rs 300.
Then, GST would be charged on Rs 500 while existing VAT would be charged on Rs 300.
Both these taxes should be charged separately on each bill component(Food and Alcohol) and they should not be charged on each other.
Another major thing that was worrying Timmy was Service Charge. He though Service Charge is a part of tax.
But I cleared his misconception and explained him that service charge is not a part of tax and is charged by the restaurants for the hospitality services that they offer. It is an income for the restaurant that is in the nature of a tip or gratuity paid by a customer.
This component of the food bill has not been impacted by the implementation of the GST and would continue to plague diners.
Though the mention of multiple taxes (CGST, SGST/ UTGST, VAT on alcohol) and service charge on a restaurant bill is still creating anxiety for Timmy and foodies like him, it is believed that the advent of GST is likely to increase the appetite of the diners at the restaurants because sooner or later, restaurants are likely to pass on the benefit of overall reduced tax rates and the availability of smooth input tax benefit to their diners, allowing them to consume more at the same price.
When I told this to Timmy, he was overjoyed, became extremely happy and took me his favourite burger place for a treat.
He was no longer depressed by this new tax regime and soon gained back his apetite.
I hope this peice of information was heplful and you would enjoy your meals without any worry.
Bon apetit !