Amid the confusion about the Goods and Services Tax (GST) regime, which came into effect from July 1, 2017, social media has been flooded with tweets by customers reporting instances where restaurants have levied both VAT and service tax besides GST in their invoice.
Some also pointed out instances where GST was levied on both food and alcohol, and VAT on alcohol separately. To end this confusion, the Central Board of Excise and Customs (CBEC) has tweeted a clarification on the rates of GST for restaurants. If the new tax regime has left you feeling bewildered, this will hopefully put your doubts to rest.
Under the new tax regime, restaurants have been divided into two categories – restaurants with no air-conditioning and those with full air-conditioning.
The food you order attracts tax at two rates – 12% and 18%. What tax is levied on your order – whether 12% or 18% – will depend on if it’s an AC restaurant or a non-AC restaurant, and whether it has the license to serve alcohol.
So, your non-AC, roadside eateries that don’t serve alcohol, along with your local delivery restaurants, will charge tax at 12%. However, the restaurants with full air-conditioning – both with or without alcohol – will charge tax at 18%. The tax charged at the non-AC eateries that serve alcohol will also be 18%.
Now, something to keep in mind here is that these GST rates include both CGST (Central GST) and SGST (State GST). The tax rate of 12% is split at 6% CGST and 6% SGST – the former goes to the Centre and the latter to the state. Similarly, the tax rate of 18% gets split at 9% CGST and 9% SGST. It has been reiterated by the CBEC that GST cannot be charged at 28% by any restaurant. Another thing worth noting is that the Service Tax and VAT is subsumed into one single rate under the GST regime, but you may still find service charge added on your invoice.
The CBEC has also clarified that “the actual GST incidence will be lesser due to increased availability of input tax credit.” Sandeep Sehgal, director-tax and regulatory at Ashok Maheshwary & Associates LLP, told NDTV that many input credits that weren’t yet available, will now be available for utilising against GST liability.
Another clarification by the CBEC is that the restaurants under the Composition Scheme – with up to an aggregate turnover of Rs 75 lakh – will charge GST at the rate of 5%. The Composition Scheme enables such restaurants to pay tax at a flat rate without input credits. If you’re still left with a lot of doubts, you can make use of an app called GST Rate Finder, which has been introduced by the government to help you find the GST rate on specific goods and services. So the next time you’re eating out, this will help you double check if the proper GST tax rate has been levied on your food bill.