GST effects on restaurant, hotel and banking

GST effects on restaurant, hotel and banking

Diverse views exist about GST because of so many tax rates.So its application is a very important challenge. when an advanced instrument of taxation like GST is introduced, sometimes businesses have to realign about pricing based on the new tax burden.Thus  devising an effective pricing strategy in the GST era may require some brainstorming for businesses. The dual tax enforcement structure India has adopted – whereby both states and the Centre are in charge of enforcement is yet another potentially problematic area.

Moreover there is no guarantee of a smooth transition. Question mark remains on the technological preparedness of the software for the new system ahead of its launch. This implies that business could face rough days at least during the first lap.Businesses remain apprehensive of challenges ahead. GST Network,the company providing the infrastructural backbone for the new tax system, had said in an interview that it has not conducted a test of the final version of the software owing to shortage of time. 

In an interview to the Business Standard, GSTN Chairman Navin Kumar had said the software had been updated after last-minute changes were made to GST rules, but there was no time to carry out beta tests on this version. This means last minute hiccups are possible, even though Kumar said he was “fairly confident” of the system. Technology experts, however, expressed scepticism that this was a big risk to take with a reform at the scale of the GST. 

Under the new system, business are supposed to file tax returns online, at regular intervals. Of the various GST Returns forms (GSTR 1, 2 and 3), only the first has been coded and the process for the other two  is still in progress. Thus, though the tax regime will be formally launched on Friday midnight, its full version  will be made available in a staggered manner. 

Moreover, businessmen will have to manage their accounts by themselves, according to the GST rules, till the time the GST portal can be used to file returns, which is expected to happen only bythe end August or September.Enterprises have time till September to file invoices with the GSTN for July and August, but they are unlikely to do that well in advance 

Under the new tax regime, while businesses that make Rs 20 lakh will be exempt from GST registration, a majority of businesses will be required to file three returns a month. GSTR1 for outward supplies, GSTR 2 is for inward supplies and GST 3 is a combination of the first and second.About three billion invoices are expected to be  generated every month by all businesses under the GST ambit and GST Network’s strength to handle the accumulated load of two months , is still doubtful.

Bug alert

Large number of submissions will come with incorrect data because people just won’t know where to file what but it remains to be seen if the systems can weed it out efficiently. Rolling out the software without rigorous testing and checks can be particularly difficult for software developers .

Another problem with the GST rollout is the unavailability of Application Programming Interfaces or APIs, which link the input of one software to the output of another. These APIs are required to link the GSTN to the GST Suvidha Providers. 

However, the second and third sets of APIs are still being developed.The challenge with APIs is that if they are updated after their release, the GST Suvidha Provider, which has to build its software over the API, would have to update at its end too. Thus the APIs should foolproof because even a minor change can have a major impact.As they are not released, everyone left in a difficult spot,waiting for something to break and then rushing to fix it.

If one explores the positives of this paradigm shift then the biggest benefit of GST would be the integration of the Indian economy into a single market. However to harness optimum benefits, India must put more energy into reforms of its labour and land acquisition laws as well as Foreign Direct Investment, so that its economy can grow faster.

Effects of GST on restaurant and hotels

Now Service Tax, Service Charge, VAT is no further any more in our bills now in restaurant.

Under the GST, service Tax and VAT amount will be subsumed into one single rate, but may still find service charge doing rounds in food bill.

Likewise, if sums up all service charge, service tax and vat in our restaurant bills it will be around  20.5% which will come down to 18%.

Hotels rooms are no more luxury to middle class with a rate below Rs 1,000 a day will be exempted from GST, while those with a rooms having rate between Rs 1,000-Rs 2,500 will be taxed at 12 % and those with a tariff of Rs 2,500-Rs 5,000 will attract 18 % GST.

Likewise, small restaurants with an annual turnover of less than Rs 500000 will be taxed at 5 % and other non-air-conditioned restaurants will be taxed at 12 %. Whereas air-conditioned restaurants will be taxed at 18 per cent.

Effects on banking

After GST the transaction fees in financial services are likely to increase as the government has put these mow 18%. These services were so far taxed at 15% and the hike in the tax rate means that individuals will have to pay 3% extra. Same increment is mutual funds also will be there after GST.

Insurance policies of banks can explain by below table:  

Insurance products Application Tax before GST (%) GST (%)
Term insurance premium  


On entire premium

15 18
Car insurance 15 18
Health insurance premium 15 18
Ride premium 15 18
ULIP(on charges) On premium minus investment amount 15 18
Annuity: single premium On 10% of premium 1.5 1.8
Endowment- 1st premium On 25% of premium 3.75 4.50
Endowment – renewal premium On 1.5% of premium 1.875 .25


About the author

Shilpi Gupta

Food Technologist by Profession and Blogger by Destiny. love to write articles on food technology, spirituality and social issues.