Facts about GST that every foodie must know!
Updated: Nov 14, 2017, 15:08 IST

1. The game of numbers!

Last week when GST council announced the slashing of levy on all the restaurants, it came as a fresh air of relief to the restaurant owners and even consumers. According to the announcement, eating out will now cost 5-6 per cent less, except at high-end hotels. At the same time, the government has done away with benefit of input tax credit for restaurants with an annual revenue of Rs 1 crore or more because they they had not been passing on the benefit of reduced tax to the consumers. "Since they did not pass on the benefit they are not entitled to the benefit (any longer)," finance minister Arun Jaitley has said. This move has upset the restaurant industry as this would mean, the restaurant owners will now have to pay higher tax on products used in their business. Naturally, to balance this, they will increase the cost of the dishes in the menu, hence negating the very purpose of the tax slash.

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2. Spike in menu price

The government's move is most likely to lead to a spike in menu prices. This spike may go up to 6 per cent as the tax credits have been withdrawn. For instance, if a dish earlier cost, say, Rs 500, will now cost Rs 530, if eateries decide to pass on this extra burden to consumers.

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3. Alluring tax reduction

This step will lead to a reduction in tax burden. For instance, the decline from Rs 90 (18 per cent of 500) will be Rs 26.50 (5% of 530). As a result, the final bill will reduce from Rs 590 to Rs 556.50. This makes a decline of around 5.7 per cent.

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4. The axe of Input Tax Credit

But, at the same time, the revised step by the council has taken away the benefit of input tax credit (ITC) from restaurants with an annual revenue of Rs 1 crore or more. According to finance minister Arun Jaitley, “as they (restaurants) were not passing on the benefit of lower tax incidence to consumers, they are not entitled to the benefit anymore.”

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5. What is Input Tax Credit & its effect on GST?

Input tax credit (ITC) is that levy, in which when the manufacturer pays the tax on his output, he can deduct the amount equivalent to this tax from what he paid on the input he purchased. Here, while paying the tax on his output, he can deduct or take credit for the tax he paid while purchasing inputs. According to the recent act by GST council, ITC might lead to a spike in the price of the dish. So overall, this push will actually give the consumers a marginal benefit and not a big relief in terms of eating out.

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Facts about GST that every foodie must know!
Updated: Nov 14, 2017, 15:08 IST

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Facts about GST that every foodie must know!Updated: Nov 14, 2017, 15:08 IST

Facts about GST that every foodie must know!
Updated: Nov 14, 2017, 15:08 IST