After the implementation of GST, everything has been entire changes related to taxation. It is because all the indirect taxes that used to levy previously have now subsumed under one tax which is GST. It is expected that GST would bring a positive change in our country in terms of growth and economy. According to the GST council, people who are dealing with suppliers of goods and services need to get registered under the GST as taxable individuals. However, there are certain terms and conditions that need to be followed by the taxpayers such as according to their annual turnover, they need to get registered either in the composition scheme or as a regular taxpayer. If in any case, a regular taxpayer register himself in the compositions scheme, and he is found inappropriate with the tax authorities, he will have to pay the penalties accordingly. It is, therefore important to know the impact of GST and the concerned provision before getting registered irrespective of any business you’re running. If we take an example of catering or restaurants, it is one of the most demanded businesses in India which should be very careful while filing taxes, claiming returns and ITC, and GST registration. In this post, we discuss the differences in between the taxation system that previously the catering businesses used to follow and the impact of current taxation regime.
If in any case, a regular taxpayer register himself in the compositions scheme, and he is found inappropriate with the tax authorities, he will have to pay the penalties accordingly. It is, therefore important to know the impact of GST and the concerned provision before getting registered irrespective of any business you’re running. If we take an example of catering or restaurants, it is one of the most demanded businesses in India which should be very careful while filing taxes, claiming returns and ITC, and the process of GST registration. In this post, we discuss the differences in between the taxation system that previously the catering businesses used to follow and the impact of current taxation regime.
Previous Indirect Taxation System
According to the previous indirect taxation system, restaurants provided dual services that are goods and services due to which they have to pay the dual tax in the form of VAT, Service Tax, and Luxury tax and so on. The restaurant bills previously contain three main components that are:
- Service Charge: Service charge is a tax on your bill, however, it is not mandatory for the consumers to pay because there is no such rule governing this charge. It is a sort of tip that you give to a waiter serving for you. Some restaurants charge 10% service charge on their bills.
- Service Tax: It is an amount that is charged by restaurant owners to consumers at the rate of 15%. The amount charged by restaurant owners does not constitute only services, therefore, both the components have been separated. The 40% of the cost of food was considered as service cost and the rest service tax at the rate of 6%.
- VAT: another tax that used to levy was VAT. Re catering and restaurant owners charge VAT on the food bill. However, the rate of VAT varies from State to State as well as it varies on the type of food the person is ordering such as alcoholic drinks.
Current GST System
According to the current GST system, the entire taxation process has been changes and all the indirect taxes have been subsumed under one unified tax that is GST. Here are few points that you need to consider including the GST registration if you’re running a restaurant or catering business.
Rate of GST
GST bill has been introduced to simplify the taxation system and to boost the revenue of the country which in one way or the other benefit the Restaurant Industry. There are four tax rates that will be levied on the supply of goods and services that are 5%, 12%, 18%, 28% against the previous rate of taxation. The restaurants are also liable to pay SGST and CGST as most of them deal with Intrastate supplies.
Input Tax Credit
Currently, restaurants are eligible to avail the Input tax benefit and further, they can utilize them as output tax. Under the GST regime, the restaurants can avail the benefit of CGST+SGST on input goods, however, they cannot be used for the vice-versa process.
Conclusion
The GST regime will definitely work for all the sectors doing supplies of goods and services in the long run. All you need to do is get registered under GST by filling the GST registration form and enjoy the benefits.
