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GST: Are hotels, eateries overcharging you? How to get the math right

Surbhi Gloria Singh / New Delhi 12 Jul 17 | 11:05 AM

Rates under GST are vastly different than what you would find before the tax policy change.

As consumers, we are hardly aware of the components included in the restaurant bills. Next time do check your bill to see if the proper GST or goods or services tax rate has been levied. The Central Board of Direct Taxes (CBDT) on Tuesday clarified on rates of GST for restaurants.

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Food served at restaurants attract tax at two rates under GST - 12 per cent and 18 per cent (including both CGST (Central GST) and SGST (State GST)) - depending on whether it is an AC restaurant or whether the restaurant has the licence to serve alcohol.

Understanding your restaurant bill

If you revisit your food bill from the pre-GST fine-dine experience, you’ll find Service Tax, Service Charge, VAT being added over and above the food value.

VAT: This was the tax charged on the food portion of your bill.

Service tax: This was the tax charged on the services provided by the restaurant.

Service Charge: This is a charge applied by the restaurants and not by the government. It is not mandatory to pay the service charge, as per government rules.

However, the rates under GST are vastly different than what you would find before the tax policy change. Let us look at these changed rates below.

GST Rates on Eating Out

* Non-AC roadside eateries (non-alcohol) will charge tax at 12%. This also includes your local delivery restaurants.

* AC restaurants (both those that serve alcohol and those that don’t) will charge tax at 18%

* Non-AC eateries serving alcohol will charge 18%.

* Pre-packed food: The rate of tax on a parcel of pre-packed and pre-cooked namkin sold from restaurants will attract tax at 12 per cent. Also, in case of food parcel cooked as per order, GST rates will be applicable according to service of such food in the restaurant

* Restaurants up to an aggregate turnover of Rs 75 lakh that opt for the composition scheme will charge GST at the rate of 5 per cent.

* Potable alcohol does not come under GST.

*Upender Gupta, GST Commissioner, explained that if food bill in a restaurant is Rs 500, Rs 1,000 is the alcohol bill, then GST should be levied only on Rs 500

The tax department has reiterated that no restaurant can charge GST at 28 per cent.

The tax department has also clarified that "the actual GST incidence will be lesser due to increased availability of input tax credit." Many input credits which were hitherto not available would be available now to be utilised against GST liability, says Sandeep Sehgal, director-tax and regulatory at Ashok Maheshwary & Associates LLP.

Clarification on rates of GST for Restaurants #GSTSimplified #GSTForCommonMan pic.twitter.com/io1fl3zLBg

— CBEC (@CBEC_India) July 11, 2017

Impact on end consumers

The tax department has asked restaurants, hotels and eateries to cut rates on food items to reflect the benefit of being able to set off tax paid on inputs under GST.

GST will be levied on entire sum of food bill, including service charge, in a restaurant, while the value of alcohol or alcohol products consumed will attract VAT, Revenue Secretary Hasmukh Adhia has said..

Previously, a service tax was levied on the bill. But the tax the hotel or restaurant operators paid on inputs could not be set off against the tax on final bill. This facility, called input tax credit (ITC), is available in the Goods and Services Tax (GST) regime.

"Most of the restaurants should revise downward the rate charged on food items in their menu because of ITC which is now available. So ITC should be accounted for now in form of reduction in the value of supplies which they are giving," Adhia said in GST Master Class.

He also appealed to the people not to pay heed to the rumours on social media about GST, adding that they should verify them from the authorities.

GST rate finder

The clarification comes in the wake of many people flooding the social media, seeking clarity over the new tax regime. 

Here are some tweets that expressed concern over GST.

@WeAreThane @WeAreMumbai #GST #loot please share & boycott this Restaurant of Thane. Shame on Such a Big Restaurant for charging so much pic.twitter.com/u4DTfoi83I

— Rocky Gangar (@rocky_msl) July 12, 2017

#IndianGov claims that in #GST we have to pay only 1 tax, but today I paid #GST+#SGST on a restaurant bill. What a promise @narendramodi ji.

— Jaydeep Jena (@jaydeep_jena) July 10, 2017

@centerofright How to trust restaurant owner serving food on Non-Ac space charging 18% #GST saying we have registration as AC restaurant.

— Hardik Pilojpara (@PilojparaHardik) July 10, 2017

#GST load !!

Before 2 sandwich come for Rs120 now after GST restaurant sale for Rs134.@arunjaitley @FinMinIndia @danikbhaskar @askGST_GoI pic.twitter.com/xdMahOb2J4

— ankit saxena (@ankitsaxen) July 8, 2017

To end the confusion around the multiple tax slabs, the government launched an app called the Goods and Services Tax (GST) Rates Finder. The app, available on the Android platform, is expected to assist users in finding accurate rates under the new tax regime. According to CBEC, the GST Rate Finder app will soon be available on the iOS platform as well.

How does the GST Rate Finder app work?

To find out the required tax rate:

1. Enter the name or chapter heading of the commodity or service in the search box provided

2. Search result will list all the goods and services containing the name which was typed in the search box

3. Scroll down the list of description

4. Click on any specific item on the list. A display window will pop-up, containing details such as the GST rate, description of goods or services and the chapter heading of the Harmonised System of Nomenclature (HSN).

For example, any person who has been billed by a hotel or a restaurant or for footwear can cross verify the correctness of the rate of GST charged.

Users can download the app on any smartphone. GST Rate Finder app can be used in offline mode, once downloaded.

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