GST bonanza: With effect from today, eating out in restaurants is set to get cheaper! This is with the exception of restaurants in 5-star hotels where the earlier GST rate of 18% is still applicable. The GST Council recently revised the differential tax rates for restaurants (12% for non-AC and 18% for air-conditioned) to a flat 5%. However, the move means that restaurants have been deprived of the input tax credit benefit that they had earlier. Experts are of the view that with restaurants losing out on this key benefit, menu prices are likely to go up. This has many people wondering – will eating out actually get cheaper or not?
We at Financial Express Online decided to get an Indirect tax expert to do the math for you. Says Abhishek Jain, Partner – Indirect Tax at EY, “Most AC restaurants are likely to hike prices now that their input tax credit benefit has been taken off by the government. However, realistically speaking, given the competitive market, this hike is unlikely to translate into an amount higher than what consumers were paying under the 18% GST regime.” Below are three iterations of a representative bill when two people dine out in an AC restaurant. The bills have been made keeping in mind GST@ 18% and 5%. The third bill envisages a scenario where the restaurant hikes prices by the amount of loss from the input tax credit benefit being withdrawn.
GST: Restaurant bill with GST at 18%
| Item | Quantity *Price | Total |
| Shahi Paneer | 1*300 | 300 |
| Dal Makhani | 1*250 | 250 |
| Butter Chicken | 1*500 | 500 |
| Tandoori Roti | 4*50 | 200 |
| Gulab Jamun | 2*50 | 100 |
| Cold drinks | 2*75 | 150 |
| Amount: | 1500 | |
| GST @18% | 270 | |
| Total | 1770 |
GST: Restaurant bill with GST at 5%
| Item | Quantity *Price | Total |
| Shahi Paneer | 1*300 | 300 |
| Dal Makhani | 1*250 | 250 |
| Butter Chicken | 1*500 | 500 |
| Tandoori Roti | 4*50 | 200 |
| Gulab Jamun | 2*50 | 100 |
| Cold drinks | 2*75 | 150 |
| Total Bill Price | 1500 | |
| GST @5% on Bill Price | 75 | |
| Grand Total | 1575 |
Restaurant bill with hikes prices and GST at 5%
| Item | Quantity *Price | Total |
| Shahi Paneer | 1*300 | 300 |
| Dal Makhani | 1*250 | 250 |
| Butter Chicken | 1*500 | 500 |
| Tandoori Roti | 4*50 | 200 |
| Gulab Jamun | 2*50 | 100 |
| Cold drinks | 2*75 | 150 |
| Amount: | 1500 | |
| Loss of input credit (say 18% on 300) | 54 | |
| Total Bill Price | 1554 | |
| GST @5% on Bill Price | 77.7 | |
| Grand Total | 1631.7 |
As is evident from the three bills; on an amount of Rs 1500, if 18% GST rate was applied, the bill would be Rs 1770. Now with 5% GST, the bill would be Rs 1575. If however, as expected AC restaurants were to hike prices, the EY expert assumes a scenario where the input tax credit is applicable at around 18% of 300 (assumption of input credit made a percentage of the bill).
In such a case, the bill amount after addition of Rs 54 and 5% tax on Rs 1554 (1500 + 54) would be Rs 1631.7. This is still less than the Rs 1770 that consumers had to shell out under the 18% tax regime. With the input tax credit that the restaurant owner could avail before, the amount of tax that he would pay to the government would be Rs 224 (Rs 270 – Rs 54). Now, with the input tax credit withdrawn, the restaurant owner has to pay the entire tax amount in the bill to the government. At a broad level, input tax credit is the tax that a restaurant owner has to pay on all items that he uses as ” input” to provide food to customers. This includes the tax on branded food items that are purchased to make dishes, the rent of the premises etc.
“So, even though we expect that the entire benefit for the reduction in GST from 18% to 5% will not be translated to consumers by restaurants, a part of it would be. So, consumers will in my view have to shell out less than what they were under 18% GST,” says Jain.
