Goods and Services Tax (GST) is an indirect tax. It is imposed on the supply of goods and services across the country. It has brought a uniformity in the indirect tax hierarchy by replacing all the indirect taxes that existed in the pre-GST regime. In this article, we Discuss GST on Banquet and Catering Services.
About GST and its Benefits
GST is an indirect tax introduced because of the need to replace several indirect taxes in India, namely VAT, service taxes, excise duties, etc. The Parliament of India passed the GST or the Goods and Services Tax Act on 29th March 2017, and it came into effect on 1st July 2017.
GST is beneficial because it brings several indirect taxes such as VAT, service tax, excise duties, etc., under one umbrella. Also, it has helped reduce the cascading effect of taxes on the prices of goods and services. Moreover, GST has reduced the burden of taxes on the manufacturing businesses, because of which they can now sell their products to the common public at lower prices.
GST on Banquet and Catering Services
India, hotels and large Banquet halls generally provide banquet hall services, including renting the hall and decoration. Also, they offer restaurant services such as catering, supplying the workforce, and arranging for the festivities. However, a Banquet hall or hotel can either choose to rent out the hall or render catering services.
Four relevant HSN classifications are applicable in the case of the services mentioned above.
HSN 996331 includes services such as cafes, room services, home delivery of food, and other similar services.
HSN 996334 includes catering services rendered in functions, marriages and exhibition halls, and other events.
HSN 998553 includes reservation services for convention and congress centres
HSN 997212 includes leasing or rental services associated with the leased or owned non-residential property.
This article specifically focuses on the applicable GST on Banquet and Catering services.
GST on Banquet Hall Services
The contention point always has been whether one should consider banquet services under HSN 997212 or HSN 996334. HSN 997212 deals with leasing or renting industrial, non-residential, and commercial structures. Also, it is applicable only in cases where leasing services are involved. However, a banquet hall provides both leasing and catering services.
Therefore, one can safely assume that banquet services fall under HSN 996334, because of which the GST rate applicable to banquet services is 18%.
GST on Catering Services
As a customer, we hardly notice the food bill served to us because we are either unaware of the bill’s components or choose to remain ignorant. In the pre-GST era, service charges, service taxes, and VAT were levied over and above the food cost. Let us firstly better understand these components.
It is the tax on services rendered by the caterer. The government has already directed catering service providers to distinguish the food and service portion, because of which they have started charging taxes accordingly.
In reality, this is not a tax at all. It is a charge levied by the caterers and not the government. It is an income to the catering service providers and should not be confused with service tax.
VAT is the tax charged on the food consumed by you.
However, post-GST introduction, the rates are now vastly different. Let us look at the revised rates in the table below.
Types of Restaurants GST Rates Applicable
IRCTC Restaurants 5% without ITC
Standalone Restaurants 5% without ITC
Restaurants with Catering Services 5% without ITC
Restaurants within Hotels – with room tariff less than Rs. 7,500 5% without ITC
Outdoor Catering Services within Hotels – with room tariff less than Rs. 7,500 5% without ITC
Restaurants within hotels – with room tariff more than Rs. 7,500 18% with ITC
Outdoor Catering Services within Hotels – with room tariff more than Rs. 7,500 18% with ITC
The GST structure combines the VAT and service tax portion of a customer’s food bill into one single rate; however, a customer may still find service charges levied.
Assume you consumed food worth Rs. 2,000 at a restaurant. Before implementing GST, with a 10% service charge, 5.6% service tax, 14.5% VAT, and other taxes amounting to 0.04%, the total bill came to Rs. 2,651. However, after implementing a standard GST rate of 18%, the same bill now amounts to Rs. 2,596, because of which you save Rs. 55.
Even for restaurant and catering service providers, GST is beneficial because the reduced burden of taxes on their pockets allows them to enhance their working capital.
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