Restaurants are currently levied a 5% GST, but they can’t claim the input tax credit against the tax they paid on raw materials and other expenses like rent. GST rate on restaurants was slashed to 5% from 18% in November 2017. While levying of 18% allowed them to claim input tax credit, under the 5% rate, they can’t do that.
This essentially means that restaurants would not be able to set off taxes paid on raw materials against their sales. Rohan Shah, a council appearing for Hardcastle filed a writ petition in the Gujarat High Court last week and notices were issued to the government to file a reply in this regard.
“A lower rate while optically has fared well with customers, a denial of input tax credit to restaurant businesses have increased their tax costs. These businesses have for long been discussing with the government on an optional higher rate with input tax credit and would now also look forward to the final High Court Ruling on this,” said Abhishek Jain, Tax Partner, EY India.