Big Relief: GST Council slashes tax rate on 178 items to 18%; eating out gets cheaper as restaurants get tax rate cut

The GST Council cut rates on 178 items to 18 percent from 28 percent on Friday, slashed taxes on all standalone restaurants to 5 percent, simplified return filing procedures for small firms in one of biggest changes in rules and rates since the new system kicked in from July 1.

The Goods and Services (GST) Council, which met in Guwahati, has decided to cut keep only 50 luxury and 'sin' goods like tobacco in the highest slab, paving the way for price cuts in raft of commonly used goods from furniture to sanitary ware, electrical fittings, detergents, marble flooring and toiletries

Except for white goods, some auto parts, aircraft parts, yatch-related products, cement, paint and some other products, the GST rate on all other items have been placed in a lower slab.

The GST rate on two items— wet grinders, armoured fighting vehicles—have been cut from 28 to 12 percent. Taxes on six items have been cut from 18 to 5 percent, in eight items from 12 to 5 percent and from 5 to zero percent in six items.

The tax cuts will have a revenue implication of about Rs 20,000 crore, sources indicated.

The council also simplified procedures, and several changes to make the 'Composition Scheme' more attractive.

The GST Council — the apex body for decision making headed by finance minister Arun Jaitley — also decided to impose a uniform GST rate of 5 percent across all categories of standalone restaurants — air-conditioned and non-air-conditioned — but withdraw the benefits of input tax credit (ITC) from such businesses.

Jaitley said that the council has noted that no restaurants were passing on the benefits of ITC to customers and had linearly raised their meal rates after GST became effective from July 1.

Input credit means at the time of paying tax on output, a producer, trader or service provider can reduce the tax already paid on inputs.

“The council noted that, after GST restaurants did not pass it on to customers. GST was was being charged on existing meal rates,” Jaitley said, obliquely hinting that the government would not hesitate to invoke the anti-profiteering clause and clamp down on business found to be not passing on the benefits to customers.

“The GST rate for all restaurants, AC and non-AC, irrespective of turnover, will now be 5 percent,” Jaitley said. “Since they did not pass on benefits, no restaurants will be eligible for ITC henceforth,” he said.

Restaurants in starred hotels and outdoor catering services will attract a GST of 18 percent along with ITC benefits.