New Delhi: The decision by the GST Council on Friday to cut back on the GST rates for restaurants from 18% to 5% is one that will be welcomed by consumers. Earlier the rates varied from air-conditioned eateries and those with liquor licences at 18 to non-air-conditioned restaurants at 12%.
This rate cut, which will come into effect from Nov 15, will be applicable for all stand alone restaurants and restaurants in hotels with less than Rs 7500 as room tariff. However, in the case of restaurants with rates above Rs 7500, it will still be taxed at 18%.

Great, will my food become cheaper now?
Maybe, since the ultimate decision rests with the restaurant if they chose not to increase the menu cost since the GST Council also removed the system of input tax credit.

This means that the restaurants may not be able to get tax benefits on crucial ingredients which might push up the final cost of the menu.
"Denying the input tax credit benefit goes against the very grain of GST and will push up costs by 10 per cent which will be added to the menu price. So, effectively the consumer will get a marginal benefit and not a big relief," said Rahul Singh, National Restaurant Association of India vice-president and CEO of The Beer Cafe.

What is input tax credit?
Input credit means at the time of paying tax on output, you can reduce the tax you have already paid on inputs.

For a restaurant, if tax payable on final product is Rs 450, and the tax paid on input (purchases) is Rs 300 then they can claim input credit of Rs 300 and only need to deposit Rs 150 in taxes.

The Federation of Hotel and Restaurant Associations of India (FHRAI) said GST Council's decision to cut tax rate for restaurants to 5 percent without input tax credit will help restaurants across India rationalise tariffs.

"We welcome the reduction in GST slab... However, the very concept of ITC (input tax credit) is central to GST, which is to prevent cascading of taxes," said restaurateur and the association's vice president Rahul Singh.

Other implications of the GST cut
Sushil Modi, who heads a panel on the Goods and Services Tax Network in the council, said yesterday's changes will cost the exchequer around Rs. 20,000 crore in fiscal 2018.

Lack of input tax credit (ITC) under the Goods and Services Tax has impacted the Meetings, Incentives, Conferences and Exhibitions (MICE) segment with cancellations and postponement of events, according to the Hotel and Restaurant Association of India.

One of the reasons Mr Jaitley gave for removing input tax credit for some restaurants is that they have not been passing on the benefit to customers. Analysts say removing input tax credit may not be an ideal policy move. 

"This decision seems to be based on the government's belief that the industry has not passed on the input credit benefit to customers," Pratik Jain, indirect tax partner at consultancy firm PwC India said.

Meanwhile the Congress has said that this cut was based entirely with the Gujarat elections in mind as a large number of the BJP’s support base are traders and this cut will help in boosting their business.

References
www.ndtv.com
www.moneycontrol.com
www.thehindubusinessline.com
www.cleartax.in