Bharat Rakshak

All about eating out and GST applicable

https://cleartax.in/s/impact-gst-food-s ... t-business

I do not have the exact numbers but veg restaurants in Chennai like A2B/Hotchips used to give 2%-4% tax on the bill (or) some very negligible amount. The Pizza's/MCD's of the world used to have something close to 20% tax (I think).

Now everyone is charging 18% which is a difference of close to 14%-16%. I doubt its tax evasion since those restaurant chains are pretty big and one used to get the bill with the less tax amount.

In this thread, I keep reading that it was earlier 14% VAT + 1% of something else to come a total of 15% but I am pretty confused on how it was 2%-4% earlier and now it has become 18%

Can some GST gurus explain on what was actually happening before and why the drastic change now?

Edit: Added later:

I could be wrong but Google is saying that TN had a VAT of just 2.0%-2.5% for restaurants and now it has become 18%, an increase of 16.5%. I guess Pizza Hut and others had a total tax of 30% after adding 10% Service charge tax.

I am not sure what someone was thinking by making Idly and Pizza in the same tax bracket

i have read in KAR, under some scheme the darshinis were liable to less tax..something like you mentioned.

Singha wrote:i have read in KAR, under some scheme the darshinis were liable to less tax..something like you mentioned.

Yes, you are correct 2.5% TN VAT has become 18%. It makes no sense to tax staple diet from hotels like Idly, Dosa, Vada ..etc and junk foods like Pizza, Burgers..etc in the same bracket. A lot of working population in Chennai needs to eat 2-3 times in a restaurant in a day and this would make a huge dent in their wallet.

I hope the government knows what they are doing with GST.

vivek_v wrote:I do not have the exact numbers but veg restaurants in Chennai like A2B/Hotchips used to give 2%-4% tax on the bill (or) some very negligible amount. The Pizza's/MCD's of the world used to have something close to 20% tax (I think).

Now everyone is charging 18% which is a difference of close to 14%-16%. I doubt its tax evasion since those restaurant chains are pretty big and one used to get the bill with the less tax amount.

In this thread, I keep reading that it was earlier 14% VAT + 1% of something else to come a total of 15% but I am pretty confused on how it was 2%-4% earlier and now it has become 18%

Can some GST gurus explain on what was actually happening before and why the drastic change now?

Edit: Added later:

I could be wrong but Google is saying that TN had a VAT of just 2.0%-2.5% for restaurants and now it has become 18%, an increase of 16.5%. I guess Pizza Hut and others had a total tax of 30% after adding 10% Service charge tax.

I am not sure what someone was thinking by making Idly and Pizza in the same tax bracket

Its the Service Tax which was 14+1=15%. But due to abatement it would be effective 6-7% for non-AC and 12% for AC restaurants (may not be exact numbers but thereabout) 0% on non-AC and 6% on AC restaurants on the base price. VAT would be different for different states, up to 5-6% in some cases. Not all restaurants would show separate service charge on the bill and thus no service tax would be shown. All taxes would be included in the bill. Thus it was difficult to know how much tax was being paid, or even being paid at all. With GST one good thing is it has to be explicitly mentioned.

Ideally speaking, considering earlier "ST+VAT + excise duty + various other taxes" and current "18% GST - ITC", we should see slightly less taxes as compared to what it were previously, particularly for the AC restaurants. Non-AC restaurants might see somewhat increase in taxes but it should not be too steep, definitely not like 10% or more. Of coarse if some seller was evading taxes and now wants to come under GST, then its a different story.

There is nothing like "Service Charge Tax". Service Charge was like a tip and totally voluntary and Service Tax was as explained above.

vivek_v wrote:

Singha wrote:i have read in KAR, under some scheme the darshinis were liable to less tax..something like you mentioned.

Yes, you are correct 2.5% TN VAT has become 18%. It makes no sense to tax staple diet from hotels like Idly, Dosa, Vada ..etc and junk foods like Pizza, Burgers..etc in the same bracket. A lot of working population in Chennai needs to eat 2-3 times in a restaurant in a day and this would make a huge dent in their wallet.

I hope the government knows what they are doing with GST.

That 18% not only subsumed VAT but also ST. And considering that the seller can claim ITC, the effective rate would be less than 18% and less than the total tax liabilities in previous regime in majority of cases (at least not more than say 4-5% in worst case scenario). For eateries that is.

Singha wrote:were the office catering business tax free earlier?

they have raised prices in our office from 20 to 25%

Rs 40 chole-rice has become Rs50 (now they show base price as Rs42 and GST of around Rs8)

Rs 100 roomali roti-salad-dal-paneer bhuji Rs 100->Rs120 (20% hike)

Same in my office. 80 bucks Thali is now 90. 76 for thali rest SGST and CGST.

JayS wrote:
............................Its the Service Tax which was 14+1=15%. But due to abatement it would be effective 6-7% for non-AC and 12% for AC restaurants (may not be exact numbers but thereabout) on the base price...................

Ideally speaking, considering earlier "ST+VAT + excise duty + various other taxes" and current "18% GST - ITC", we should see slightly less taxes as compared to what it were previously, particularly for the AC restaurants. Non-AC restaurants might see somewhat increase in taxes but it should not be too steep, definitely not like 10% or more. Of coarse if some seller was evading taxes and now wants to come under GST, then its a different story.

There is nothing like "Service Charge Tax". Service Charge was like a tip and totally voluntary and Service Tax was as explained above.

I am more confused now Could you clarify what "abatement" means, does it mean that Service tax was not charged or something?

If I were to understand what you had mentioned with an example, say I buy one plate of Idly,

a. Previously it was "Idly" cost which included service tax plus TN VAT of 2.5% was charged?

b. Now its Raw "Idly" materials cost plus the 18% GST?

Even here I fail to understand how GST should be cheaper for restaurants?

Note that these eateries are not fly by night operators and hence I doubt tax evasion at a massive scale in the bill itself.

From what I can see the price of the items have remained a constant (say a plate of Idly in this case) but the final bill seems to have 18% tax instead of 2.5% tax there is a subsequent increase of close to 14%.

From your post, it should be the same or a reduced amount? What causes the difference?

Everyone is piling on using gst as cover

My internet bill has been increased by 5%

vivek_v wrote:

JayS wrote:
............................Its the Service Tax which was 14+1=15%. But due to abatement it would be effective 6-7% for non-AC and 12% for AC restaurants (may not be exact numbers but thereabout) on the base price...................

Ideally speaking, considering earlier "ST+VAT + excise duty + various other taxes" and current "18% GST - ITC", we should see slightly less taxes as compared to what it were previously, particularly for the AC restaurants. Non-AC restaurants might see somewhat increase in taxes but it should not be too steep, definitely not like 10% or more. Of coarse if some seller was evading taxes and now wants to come under GST, then its a different story.

There is nothing like "Service Charge Tax". Service Charge was like a tip and totally voluntary and Service Tax was as explained above.

I am more confused now Could you clarify what "abatement" means, does it mean that Service tax was not charged or something?

If I were to understand what you had mentioned with an example, say I buy one plate of Idly,

a. Previously it was "Idly" cost which included service tax plus TN VAT of 2.5% was charged?

b. Now its Raw "Idly" materials cost plus the 18% GST?

Even here I fail to understand how GST should be cheaper for restaurants?

Note that these eateries are not fly by night operators and hence I doubt tax evasion at a massive scale in the bill itself.

From what I can see the price of the items have remained a constant (say a plate of Idly in this case) but the final bill seems to have 18% tax instead of 2.5% tax there is a subsequent increase of close to 14%.

From your post, it should be the same or a reduced amount? What causes the difference?

I corrected my earlier post.

There is a circular for ST specifying "abatement" for certain categories for application of ST on the entire sale value. This is to take care of the mixed nature of total sales value where a part of it is Services and other part being the Goods. ST is applicable only on the Services part. Consider for example that an apartment was constructed and sold for 1Cr. In this the construction cost was say 60lakh. (Rest 40lakh is land price and is not taxed). So ST and VAT would be levied on 60lakh. Now this 60lakh consists of efforts to build as well as cost of cement, bricks, tiles, plumbing et all in it. The later part is Goods. ST would be applicable on only the Service part, i.e. human efforts roughly speaking. But how would one decide how much of 60lakh is Services and how much is Goods. So GOI issued guidelines that for Residential building 30% of the construction cost is considered as Services component and only that should be levied ST on. Thus the ST in this case is 0.3 * 60lakh * 15% = 4.5% * 60lakh. This 70% is the "Abatement". Like this there was abatement for non-AC restaurants, AC restaurant, travelling agency etc. Thus despite ST=15% the effective rate for many restaurants was 0.4*15% = 6%. And so on.

Now in your example, since only VAT was mentioned on the bill but not ST there are 3 possibilities:
- The particular business or item was exempted from ST (This is the case for non-AC restaurants - I was not aware of this one until now)
- The seller was paying ST but he included it in his price (possible but in this case he is charging VAT on that ST component as well..! But its tiny bit)
- The seller was simply not paying the ST.

Take your pick.

OK I checked the details for AC vs Non-AC. Earlier, non-AC was exempted from ST. GST has 12% charges on non-AC and 18% on AC restaurants. Also it doesn't matter if you sit in AC or not, if the restaurant has AC section you pay 18% even if you sit outdoors.

So now,
- non-AC restaurants should see 12% GST instead of 0% ST + 2-3% VAT >> 8-9% increase.
- AC restaurants should see 18% GST instead of 6% ST + 2-3% VAT >> 8-9% increase.

However, we should also consider effect of Input Tax Credit. So any restaurant should get at least some ITC, say 4-5% minimum. I would say the bigger AC restaurants would get more ITC, enough to compensate for the increase in the taxes (because they have higher Service component). While the smaller restaurants (like thelas, mess, dhabas etc) might not get enough ITC to compensate all the increase but at least partial should be possible. Note that some of those can opt out of GST if they are below the 20lakh (IIRC) limit.

In summary, I expect smaller increase in bills for non-AC restaurants (definitely not 18%, more like 4-5%) and for AC restaurants I would expect same or slightly less bills. Of coarse this is in an ideal Bharat where the seller honestly tries to pass on ITC to consumer, which no body wants to do it seems as of now.

Yes except brick n mortar goods anything to do with service is out to rape us using gst as shield

But we now have this 'anti profiteering' law/act/bill r and hasnt a stern warning been issued to businesses about profiteering from GST. I would have expected all business to shiver in their dhoti and comply.

rahulm wrote:But we now have this 'anti profiteering' law/act/bill r and hasnt a stern warning been issued to businesses about profiteering from GST. I would have expected all business to shiver in their dhoti and comply.

GOI needs to make example out of a few businesses then only people will comply. Otherwise I am fully expecting every damn business to try and pocket any reduction in taxes as profit - right from small panwala to biggest MNC conglomerates (barring a few honest souls).

@JayS. Thank you, it's much clear now. Basically, it seems that everyone out to increase prices qoting GST but pocketing the profits.

I hope that government acts and does not provide ammunition to the opposition since the common man would not really understand the nuances of the same.

Checkpoint to checkpoint, how GST effect differs

Yesterday, I went to Navatara, probably, the only decent veg chain restaurant in Goa. All kosher. It's a AC/Non AC restaurant. GDT at 18% charged on a computerised bill.

Went to small guitar shop to buy a capo and a set of strings. He was selling pre GST stock and sold it at MRP. He said, he will start charging GST once he buys stock under the new regime. I don't think the shop does more than 20 lakhs per year.

vivek_v wrote:@JayS. Thank you, it's much clear now. Basically, it seems that everyone out to increase prices qoting GST but pocketing the profits.

I hope that government acts and does not provide ammunition to the opposition since the common man would not really understand the nuances of the same.

Sounds like the market is not sufficiently competitive. Otherwise, someone or the other would undercut the others' prices.

I had ordered a lenovo monitor for office use. the supplier came back and said lenovo will take 4 weeks to supply monitor due to GST.

maybe some of these cos had stopped their manufacturing a few weeks ago to flush the stock of pre-GST inventory ? i dont understand why though as the article remains the same, only the tax levied on sticker price will change which is a overlay.

things like office catering agencies cannot be changed on the fly . there could be some notice period if the co wants to retender and chances of cartelization are high since a half dozen biggies together supply lakhs of daily meals to tech parks here. sometimes food is brought in some offsite kitchens and sometimes food is cooked in onsite kitchens.

my office probably cooks some 5000 lunches, 2500 breakfasts, 2500 evening snacks, 1000s of cups of tea/coffee/juice in two vast cafetarias backed by large kitchens and freezer rooms. the external bank of gas in one kitchen is visible and has some 50 cylinders.

went to a andhra food place nandhana grand today. no change in menu prices but 18% gst instead of 14%vat+st - this is expected.

GST is an opportunity for unscrupulous businessmen to make a windfall profit and improve their margins. They are acting ignorance and also attributing it to genuine mistakes. I believe there is a clause in GST against profiteering. It remains to be seen how govt responds to it.

I suspect Govt apart from "making an example" cases will generally turn a blind eye. They have made sure the inflation is low right now and this inflationary effect of GST will be taken on the chin. The market forces will inevitably catch-up and play a balancing factor to normalise the prices in few months.

I guess this is a small price to pay to improve overall economic efficiency in the long term.

This is a transition period. Once the dust settles and tax and margins are clear to all, competition will be there.

Drop shipping and online purchases will increase because of ITC benefits being passed on.

A_Gupta wrote:

vivek_v wrote:@JayS. Thank you, it's much clear now. Basically, it seems that everyone out to increase prices qoting GST but pocketing the profits.

I hope that government acts and does not provide ammunition to the opposition since the common man would not really understand the nuances of the same.

Sounds like the market is not sufficiently competitive. Otherwise, someone or the other would undercut the others' prices.

It would take time for market forces to drive down prices wherever possible. Right now many businesses are genuinely not sure how much exactly is the delta value from pre-GST to post-GST era and how much ITC they can pass on as price reduction. I would say, this FY will have to pass for things to go back to normal. For some items/sectors the new normal will be higher than the pre-GST normal, for other it would be lower. Soon we will get conditioned to the new normal and won't remember the jerk given by GST.

Kerala Fin.Min Isaac warns hotel, restaurant owners against hefty billing post GST.
Thomas Issac has been highly critical about GST (and any thing done by Modi & Co), but don't know why the sudden interest in ensuring that the tax dues are coming. Is there some funda which forces the state to comply? Or is it that all GST first goes to the Central Govt. and then distributed back to the states in a predefined ratio?

JayS wrote:It would take time for market forces to drive down prices wherever possible. Right now many businesses are genuinely not sure how much exactly is the delta value from pre-GST to post-GST era and how much ITC they can pass on as price reduction. I would say, this FY will have to pass for things to go back to normal. For some items/sectors the new normal will be higher than the pre-GST normal, for other it would be lower. Soon we will get conditioned to the new normal and won't remember the jerk given by GST.

most of the conventional traders are just herd mentality folks...they'll just follow what their association tells them or whatever the next guy is doing.

keeping prices jacked up can work in this transition period, but in a playing field with lesser entry barriers than before, some enterprising fellow can grab business by being GST compliant and pass ITC credits to consumer. To me, this is the big idea - because it now makes the tax compliant trader more competitive than a tax evader trader - reversing the situation before, where the tax evader can use the unpaid tax money to corner markets and push out tax compliant trader.

By the way, folks who were saying this during DeMo - "pffffft...how can DeMo reduce black money. It will be generated right back, because of all the traders generating it again in small amounts. DeMo is useless without addressing that" and now they are like "This is targeting of traders"

Gus wrote:

JayS wrote:It would take time for market forces to drive down prices wherever possible. Right now many businesses are genuinely not sure how much exactly is the delta value from pre-GST to post-GST era and how much ITC they can pass on as price reduction. I would say, this FY will have to pass for things to go back to normal. For some items/sectors the new normal will be higher than the pre-GST normal, for other it would be lower. Soon we will get conditioned to the new normal and won't remember the jerk given by GST.

most of the conventional traders are just herd mentality folks...they'll just follow what their association tells them or whatever the next guy is doing.

keeping prices jacked up can work in this transition period, but in a playing field with lesser entry barriers than before, some enterprising fellow can grab business by being GST compliant and pass ITC credits to consumer. To me, this is the big idea - because it now makes the tax compliant trader more competitive than a tax evader trader - reversing the situation before, where the tax evader can use the unpaid tax money to corner markets and push out tax compliant trader.

By the way, folks who were saying this during DeMo - "pffffft...how can DeMo reduce black money. It will be generated right back, because of all the traders generating it again in small amounts. DeMo is useless without addressing that" and now they are like "This is targeting of traders"

Yes. Some day some one will blink and reduce prices and will force others to do so. The cartelization will not go on for too long.

For me the two big positives for GST are
- One law replaces hugely complicated system of many laws. (Even if one "complicated" Tax replaced 17 complicated Taxes, its still a huge huge 1st step)
- Due to ICT, invoicing is encouraged and thus now there is an incentive for white transactions.

And the single biggest negative is:
- States/local bodies can still put variety of taxes. Ideally in "One Nation One Tax" there should be only one tax imposing authority.

The biggest major hurdle is crossed when GST was enforced. Its not ideal, its not as simple as it could be. But the next iterations towards that idea will be easier and quicker to enforce.

agreed - on the fact that with this GST platform laid - it is easier to fine tune for corrections because now it is easy to measure and analyze and apply corrections. It is much easier now to encourage and discourage certain things and align business activity to policy

To me, this is the big idea - because it now makes the tax compliant trader more competitive than a tax evader trader - reversing the situation before, where the tax evader can use the unpaid tax money to corner markets and push out tax compliant trader.

Exactly. Aap ke muh mei ghee shakar

Thomas Issac has been highly critical about GST (and any thing done by Modi & Co), but don't know why the sudden interest in ensuring that the tax dues are coming. 

Modi had big praise for Isaac about his contribution to GST. So, his ego is massaged deliberately or otherwise. Plus, for the Kerala tax payers, most of the Kerala VAT rules were already there and being folloeed. For them the transition is smoother. Those who are doing nakra are the ones who don't know the spelling of salestax.

How will the cost of works contracts for civil works such as brick works/RCC etc change. How are prices for common building materials such as Cement ,Steel, Bricks etc change post GST, will the costs go down or go up? What will be the input credit that a client can hope to get in these materials. What happens to Works Contracts post GST?

JIM ROGERS on GST

Two days back I have taken food in the hotel and the price got up from 130 to 158 for the same items. When checked they added GST. But the earlier price is including of taxes like Luxury or some other rubbish tax. So basically traders are now looting people.

I do hope they are paying the tax they are collecting from us.

geeth wrote:

Thomas Issac has been highly critical about GST (and any thing done by Modi & Co), but don't know why the sudden interest in ensuring that the tax dues are coming. 

Modi had big praise for Isaac about his contribution to GST. So, his ego is massaged deliberately or otherwise. Plus, for the Kerala tax payers, most of the Kerala VAT rules were already there and being folloeed. For them the transition is smoother. Those who are doing nakra are the ones who don't know the spelling of salestax.

there is a phrase that goes "damning with praise"

hopefully the scummuinists will view this guy with suspicion

Old Delhi's cloth merchants are striking again. LOL

There is a report going on rightnow on New7 that there is a significant shortage of medicines (reported from salem) due to GST. Claim is manufacturers are not shipping due to GST issues

Guys., for complaining against restaurants who have jacked up prices post GST (they are all tax frauds)., send an email to blackmoneyinfo@incometax.gov.in with the restaurant details.

Or if you want to., send a post to:

Information may be emailed to Additional Director General mk.rustogi-as@gov.in or to Additional Director nilesh.gupta@nic.in or sent by post/courier to:
The Additional Director General (EI)
Central Economic Intelligence Bureau
6th Floor, B Wing, Janpath Bhawan
Janpath, New Delhi 110001

Even 1 in 10 enquiry to a restaurant will put a stop to their shenanigans.

Sell Chicken at Rs 87/kg or Face Action, Kerala Finance Minister Tells Traders

The minister called on traders to reduce the price of chicken as it came under the zero tax bracket with the rollout of GST on July 1. Kerala was the only state which levied a tax on chicken at 14.5%.

Wednesday at 4:30 pm at DD National GST legal & taxation commissioner would be in GST Master Class for the whole nation.
All questions are invited..please shoot away your enquiries.
Also please follow twitter handle @CBEC_India for all such updates,
govt is holding regular sessions to spread out information on GST.

I bought ice cream at the same place...pre-GST MRP on an item was 120 INR. Post GST, selling price of the same item: 120+6% SGST+6% CGST = 134 INR (rounded off). So definitely businesses are not yet passing savings on their side to customers. May be they are not seeing the savings yet...perhaps things will settle down in a few months.

They are already seeing the savings.
The savings will be passed on to the customers by thieves only when law enforcement shows up with a thick bamboo and a can of lubricant.

Thanks to unscrupulous merchants, GST feels like "Instantaneous Inflation" to people. This is bad PR for Modi & Co, if they don't do anything about it.

The taxation slabs are also sometimes comical, which they should aggressively sort out in Version 2.0.

Thanks to Jaitley & babus, Modi missed a trick with GST. Given that he is widening the tax base, he should've ensured that practically ALL items will be taxed less under GST. That would've been a huge political win (& the widened tax base would have been a fiscal win). In such a scenario, he could've put out a carte-blanche statement that action will be taken against any merchant who charges you more than what you were charged earlier. Instead, the picture is murky. Some items are expensive. Others are not. Babus in Delhi decide that Rs 120 cinema tickets are a "luxury" & must be taxed at 28%, pissing off large chunks of people.

Just like with OROP, I hope Jaitley doesn't sucker Modi into snatching defeat from the jaws of victory!

P.S. The "filing 3 times a month" is great news for CAs but an absolute disaster for businesses! Only a sadistic babu could've come up with something as draconian as this.

It has to be revenue neutral and centre needs it's own revenues to compensate states for tax revenue losses. This is a consensus driven approach to make sure framework can be put in place after buy in from all parties. Not possible to push things too much.