Eat out, pay less as GST Council has reduced tax on restaurant bills by 75 per cent

The government today signalled that the way to public's heart is through lesser tax for eating out.

After months of debate and customers paying more for food at restaurants the GST council reduced tax rate on restaurant bills by almost 75%. Under the existing GST rule AC restaurants were charging 18% GST. Today, the council went way beyond the recommendations of a group of ministers and created a flat 5% rate for all kind of restaurants.

However, eating at high-end restaurants in hotels which charge a tariff of Rs 7500 per night or above will continue to invite 18% tax.

The decision will reverse the existing rates of 18% at AC restaurants and 12% at non-AC restaurants. The government had suggested a flat 12 percent rate for all kind of restaurants.

But, the GST council driven by a government which is out to do an image correction over GST, decided to push the rate lower. While the council created an incentive for the consumer with a move which will bring down prices, its decision is perhaps one of the first strong anti-profiteering measures against assessees who have become part of the GST.

During the deliberations on how much tax should be there on restaurants, almost all members of the council agreed



that restaurants were chaffing the new GST rates since July 1 this year, and food bills had gone up displeasing the public.

The government assessed that the restaurants were not passing the benefits of Input Tax Credit - a new benefit enjoyed by operators. This meant restaurants were making gains and causing pain to the public. Input credit means, at the time of paying tax on output, a producer, trader or service provider can reduce the tax already paid on inputs.

Finance minister Arun Jaitley, in a post meet briefing said, "Restaurants were not passing the benefits accruing to them due to income credit. That's why now restaurants will charge less tax from clients and wouldn't get input tax credit".

The new tax may be 13% lesser but prices in restaurants will not fall as much as the rate cut. Restaurants can still keep rates high claiming they aren't getting back the taxes they paid in procuring the inputs for the establishment.

The move is part of the government's attempts to end the negative perception due to increased bills at restaurants after GST was implemented, especially among the middle class, and what the many In the BJP call the aspirational class.

Some hotel and restaurant associations reacted with caution.