Restaurants and hotels should reduce the rates of food items on their menu to pass on to consumers the benefit of being able to set off tax paid on inputs under GST, Revenue Secretary Hasmukh Adhia said on Tuesday.
He also said that GST will be levied on the entire food bill, including service charge, in a restaurant, while the value of alcohol or alcohol products consumed will attract VAT.
Previously, a service tax was levied on the bill. But the tax the hotel or restaurant operators paid on inputs could not be offset against the tax on final bill. This input tax credit (ITC) has been introduced in the Goods and Services Tax (GST) regime.
"Most of the restaurants should revise downward the rate charged on food items in their menu because of ITC which is now available. So ITC should be accounted for now in form of reduction in the value of supplies which they are giving,'' Adhia said at a GST master class.
Under the GST regime, while nonairconditioned restaurants attract 12 per cent tax, AC restaurants and those serving liquor will attract 18 per cent.
Adhia said that anything that is served as part of a restaurant bill will be subject to GST, barring alcohol on which Value Added Tax (VAT) will be levied.
On the entire value of food bill, including service charge, on that portion also GST will apply, he said.
Adhia also disclosed that the tax department has received representation for transition provision of lease service industry. As per the GST provisions, ITC will not be available for central excise already paid on cars which are on lease.
There are a lot of representations on this about transition for lease service industry. We are looking at the representation but we are not sure how to handle this, Adhia remarked.