GST on Hotels and Restaurants in India

Analysis of GST on Hotels and Restaurants in India

• Restaurant /Hotel  services are specified as composite supply

As per Clause 6 of Schedule II (Activities to be treated as supply of goods or services of CGST Act 2017 )

The following composite supplies shall be treated as a supply of services, namely:—

(b) supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (other than alcoholic liquor for human consumption), where such supply or service is for cash, deferred payment or other valuable consideration.

• GST Rates on Hotels & Restaurant Services :Based on recent government statements, the tax slab for service sector is expected to increase to 18% under GST. Therefore GST Rate may be fixed at 18% for Hotel and Restaurant Services . [ Read Budget hotel owners make plea for 5% GST slab ]
• No GST will be payable on the goods supplied by the Restaurants to the customers as Restaurant services have been specified as composite service.
• Input Tax Credit Available : The supplier of Restaurant services will be entitled to input tax rebate on the inputs, capital goods and input services used by them in the course or furtherance of business.
• Composition Scheme under GST regime for supply of Restaurant /Hotel services
  • As per Section 10(1)(b) of CGST Act 2017/ SGST Act, the Restaurant service provider whose aggregate turnover in a previous financial year does not exceed Rs.50 lacs shall pay tax @2.5% as CGST and 2.5% as SGST totalling 5%, which is as under:-
    • 2.5%  of the turnover in State or turnover in Union territory in case of persons engaged in making supplies referred to in clause (b) of paragraph 6 of Schedule II,
  • No Input Tax Credit :- Restaurant Supplier opting  for composition Scheme will not be entitled to input tax credit
  • Pay Tax on Revese Charge on Purchase from Unregistered persons :- The composition u/s 10 of CGST Act 2017/ SGST Act is subject to provisions of Section (3) and (4) of Section 9. It means that composition persons will have to pay tax at full rate on reverse charge basis, if they get supplies from notified suppliers of goods / services and from unregistered persons.
  • Read Complete Composition Scheme under GST – Analysis
• Issues requiring Clarifications
  • If a customer takes cold drinks in a hotel/ restaurant, it will result in complications tas to which rate of Tax will be paid i.e  whether the cold drinks to be subject to tax under 28% tax slab with a cess of 15% or @18% as Restaurant services.
  • where a customer orders for alcoholic drinks alongwith meals,further complications will arise as alcoholic drinks, although outside the GST regime,will be taxed alongwith restaurant services.

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