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Rating agency ICRA on Monday welcomed the decision to levy 5 per cent GST on all restaurants, both air-conditioned and non-AC, saying the revision in rates is positive and will bring down the dining-out cost.
Last week, the GST council lowered the tax rate of restaurants to a uniform 5 per cent from 12 per cent on non-AC restaurants and 18 per cent on air-conditioned ones.
"This revision in GST rate for restaurants is positive, as it would bring down the dining-out cost, supporting footfalls and revenues at a time when most organised restaurants are struggling to grow demand," Icra Vice President and Sector Head Pavethra Ponniah said.
Currently, 12 per cent GST on food bill is levied in non-AC restaurants and 18 per cent in air-conditioned ones. All these got input tax credit, a facility to set off tax paid on inputs with final tax.
The council said the restaurants, however, did not pass on the input tax credit (ITC) to customers and so the ITC facility is being withdrawn and a uniform 5 per cent tax is levied on all restaurants without the distinction of AC or non-AC.
Restaurants in starred-hotels that charge Rs 7,500 or more per day room tariff will be levied 18 per cent GST but ITC is allowed for them.
Those restaurants in hotels charging less than Rs 7,500 room tariff will charge 5 per cent GST but will not get ITC.
"As most major inputs for restaurants like grains (not packaged), vegetables, poultry and seafood are exempt from GST, the input credit advantage available for restaurants was negligible," Ponniah said, adding that restaurants were also not passing on any benefit of input tax credit to the consumers under GST.
