GST impact on hotels and restaurants

The Indian government has however come up with a plethora of reforms, in a move in order to eradicate the corruption from the market and also add transparency to its operations. No reform which is in the recent past has however generated as much buzz as which is the Goods and Services Tax (GST).

Its implementation is thus in order to set single-handedly to abolish all the unnecessary money-charging schemes, which were earlier adopted by the retailers in order to make easy money. The reform will thus however noticeably reduce the compliance cost for the taxpayers, would harmonise the tax structure, while they are transforming the operations into a uniform entity which is across the states. Especially for the food and beverages, its implications however remain progressive. Thus, as per the current system of the taxation, the restaurant sector is however burdened with the multiple high-costing taxes, charges and also the cesses. Also , on each and every food and the beverages bill, the diner however pays additional VAT as well as the service tax and the service charge, not to forget the cesses. However , the range of VAT rate is thus generally between 12.5-14.5 per cent which is thus as per the individual State VAT laws and also the abatement rate on the service tax which is on the restaurant services is 6%. Thus, the effective tax rate however comes to somewhere which is around 18.5-20.5 per cent that thus varies for the different states.

The purpose of this article is to make the reader aware of the GST impact on the hotels and restaurant .

One should however not be surprised if the roll out of the GST however leads to minor disputes at the restaurants and the hotels after July 1 as the different rates for these kind of services could however cause confusion among the customers and shop owners. Thus , with the execution of GST, all of the taxes will however form under a single bracket, adding a kind of uniformity to a market which is plagued by the unnecessary additional taxes. In the context to restaurants, while they are however paying tax, a total of VAT which is at (12.5 per cent)+ Service Tax which is at (6 per cent) + Service Charge which is at (10 per cent) is however applied on it. The GST Council has thus also fixed multiple rates for the restaurant services which is based on the different variables - AC or non-AC, the turnover amount and also luxury category.

The Regular rates:

The levy of GST on the hotels and restraint is however discussed in the following section of this article which is along with the examples for the purpose of better understanding of the readers.

Type I hotels and restaurants

A non A/C Restaurant which is however famous for its evening snacks, sweets and different iffen items which has small eat out place which is under fan but it thus does not have any permit for serving liquors.

Currently these categories of the restaurants which however do not have AC in their hotels are however exempted from Service tax. For them , only VAT was applicable which is as per the state provisions of VAT.

Under the GST Scenario

Option 1 Under the Regular scheme

The tax rate which is applicable under GST: 12 % (6% SGST + 6% CGST) is thus required to be charged which is additionally in the bill.

Option 2 under the Composition Scheme

The rate of tax which is thus applicable: 5% (2.5 % CGST + 2.5% SGST), therefore no tax is however required to be charged in the bill to the customer. Here , tax is required to be borne by the owner.

Type II Hotels

ABC is however known for its mouthwatering dishes and also thali items. The ground floor portion of the restaurant is however to be non a/c while it is in the top floor one where can thus enjoy the tasteful dishes in a cool A/C environment which is with the dim lights and also has channel music. The aggregate turnover of the hotel is however around 1 crore which is however during the last year. Shri X however spends one evening with the family which is in the first floor of the hotel and has also got a bill of Rs 1000 which is thus exclusive of the taxes.

Under , the current scenario

Currently, however such types of restaurants are thus required in order to pay service tax @6% which is after the abatement of 60% and also where No Input Tax Credit is thus available there on. VAT is however applicable which is however as per the state provisions of VAT.

Under the GST Scenario

However as per the decision of the GST council, the Air-conditioned Restaurants and also the Restaurants with the licence in order to serve liquor however comes the under the GST rate of 18%. Thus a plain reading of this thus gives rise to the two types of interpretation which is as follows:

1. Since there are however two distinct portions which is one with the A/C and also other without A/c, it is thus logical that the customers who however take services which is in the non A/c conditioned portion should thus not be charged with the higher burden of tax and which should thus also be charged the same rate of tax as it is thus applicable to the other non a/c restaurants . Thus those customers who are thus however taking services at the non a/c portion would however thus be charged with the tax rate which is however of 12% while they however take the services which is at the top floor with the a/c facilities should however be charged with the higher rate of tax of 18%

2. In the contrast to the above presumption, which is earlier in the Service Tax regime, while the non a/c restaurants were however exempted from the payment of the service tax, even thus if in any part of the restaurant if it is however centralized air conditioning or is either air heating facilities are however present the restaurant thus comes under the purview of the service tax. Also , which is however on a similar footing even if it is air conditioning facilities are however available in one portion of the restaurant if thus the whole restaurant however thus comes under the higher rate of taxation of 18% , then even those who however takes food in the non a/c environment are however required in order to shed tax which is at 18%. This thus being the case in respect of the majority of the restaurants

Type III Out door catering services

Under the current scenario

Outdoor catering is thus however taxed at 9% of the Service tax (abated rate) and also VAT which is as per the provisions ofthe respective state VAT Act.

Whereas , scenario under GST says :

GST which is thus however at the rate of 18% of the value of the services which is however provided with the full input tax credit. However since the inputs are thus however mostly rice, also grains etc which are however zero rated, then the availability of ITC does not however substantially help the outdoor catering service provider. Thus the outdoor catering provider however is required in order to pay a GST of 18% (9% CGST +9%SGST) if it is thus considered as intra state supply and also 18% IGST if it is thus inter-state supply.

Type IV Hotels

The restaurants in 5 stars and also the above rated hotels :

Under the current scenario

These types of restaurants are however required in order to pay the service tax @6% and thus also No ITC is thus available there on because of the availability of the abated rate. VAT is thus applicable which is however as per the state provisions of VAT.

Under the GST Scenario

There is thus no possibility in order to think that, these kind of restaurants would thus ever fall in the category which is of below Rs 20 lakhs aggregate which is turn over in a financial year. Thus though the threshold limit is however available to these type of hotels as is in thus any other case, it is also however not operative in such kind of cases. Similar is thus the case which is however with the composition scheme.

Thus these kind of restaurants are however required to pay 28% GST (14% CGST and 14% SGST) which is thus on their intra state supply of the services and also 28% IGST which is thus on their interstate supply of the services.

Also , Full Input tax Credit is thus available which is thus in respect of the goods and services which is however used for providing the output service.

Also, the hotels which is however providing the short term accommodation services along with the supply of food.

Type I lodging houses

Budget hotels which is also with the room tariff which is of less than Rs 1000

Thus these category of the hotels are however exempted from the payment of GST.

Type II hotels with the room tarrif which is however ranging between Rs 1000 and also above but it is thus less than Rs 2500

Under the Current scenario

Thus , a hotel where the room tariff however exceeds Rs 1,000 is thus liable for the service tax which is thus at 15 percent. Also, an abatement of 40% is also however allowed on the tariff value by however bringing the effective rate of the service tax down to 9%. But , The Value Added Tax which is of 12 % to 14.5 % and also luxury tax will thus still apply. Also , not input service credit was however allowed due to adoption of abated rates.

Scenario under GST

Such type of hotels thus attract GST which is thus of 12% (6% CGST +6%SGST) with the full input service credit. Thus even if we however assume 12% VAT, then as is against 21% tax which was paid earlier under the GST regime, these types of hotels however end up in paying only 12 % GST which is with the benefit of the input tax credit also. This thus however appears to be a cheerful situation which is thus for the owners of such hotels.

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