GST For Restaurants Is 5% From Today; But Wait.. Eating Out Can Become More Expensive!

Last week, in a major decision, GST Council had decided to lower GST slabs for several common use items, and for restaurants and hotels.

Under the new rule, GST for restaurants would be capped at 5% flat, for both AC and non-AC restaurants.

Earlier, Goods & Services Tax for AC restaurants was 18%, and for non-AC restaurants was 12%, and there was much debate and anger on this issue.

However, now, as the GST rates for eating out is lowered, will there be any major difference in the bills? As per some calculations, no.

In fact, some analysts are even predicting that the hotel and restaurant bills can actually go up from here as well!

GST For Restaurants Reduced Effective Today

Effective today, that is November 15th, GST for restaurants and hotels have been reduced to 5%, and there is a new wave of optimism and hope within the industry.

Shares of hotels and restaurants in the BSE have surged 16% in the intra-day trade, and the market is buoyant.

Shares of Royal Orchid Hotels hit their 52-week high, whereas stocks of Asian Hotels (West), Jindal Hotels, Advani Hotels, EIH Associate Hotels and Coffee Day Enterprises surged between 2-8% yesterday.

Leading industry associations such as Federation of Hotels and Restaurants Association of India and others are happy that Govt. finally listened to their woes.

Their President Garish Oberoi said,

“We did not expect the government to reduce rates to such an extent that it would go from 18% to 5% in one go,”

However, there is a catch here, which we will shortly discuss.. And based on that, the cost of eating out can actually increase.

Why 5% GST For Restaurants Can Have Little Effect?

Withdrawal of Input Tax Credit is the answer.

Last week, while reducing GST for restaurants from 18-12% to 5%, Govt. also withdrew Input Tax Credit for restaurants, and this means, loss for the hotels.

As per Federation of Hotels and Restaurants Association of India president Garish Oberoi, 3-4% of all income generated by hotels and restaurants come via Input Tax Credit; and withdrawal of that means direct hit to profit.

Input Tax Credit is the credit on tax paid by hotels and restaurants for raw materials, which is claimed against the tax paid for delivery of services.

Besides, some of the restaurants in premium localities, which are paying 18% GST for real-estate will now charge only 5% GST from customers, which seems unfair.

This is the reason, some restaurants can increase the bill amount, levying other charges besides GST.

However, the industry is optimistic, because decreasing the Goods & Services Tax will encourage more customers to eat out, which will increase volume, thereby increasing profits.

The coming days will prove how reduction in GST for restaurants can actually help the hotel entrepreneurs and the end users.

We will keep you updated.