Attn diners: Not all restaurants can collect GST

Those under the simpler ‘composition scheme’ are not allowed to add tax on the food bill

Restaurants registered under the ‘composition scheme’ can’t collect GST from customers, tax experts say.

On Monday, businessman and former Infosys director T V Mohandas Pai tweeted a video that claimed some restaurants were scamming customers by wrongfully collecting GST. The video demonstrates how customers can check if they are being cheated.

Pai tagged the finance ministry, and Central Board of Indirect Taxes & Customs (CBIC) with his question, “Is this true?” His post has been retweeted 1,800-plus times as we go to press.

Alternative scheme

The restaurants in question fall under the GST composition scheme, an alternative tax regime designed to reduce the compliance burden on small taxpayers. “These restaurants have to pay 5% GST from their own kitty and not collect it from customers,” says Prabhakar K S, founder and CEO, Shree Tax Chambers.

“Restaurants can opt for either regular or composition tax-paying scheme. Under the regular scheme, standalone restaurants can collect 5% GST, restaurants located on hotel premises with daily tariff of Rs 7,500 or more should levy 18% GST, and pre-packed and pre-cooked food items from restaurants account for 12% GST. The composition scheme applies to small businesses, such as traders and small restaurants,” he explains.

Timmayya Hegde from accountancy firm Sethia Prabhad Hegde and Co says the composition scheme applies to restaurants with a turnover not exceeding Rs 1.5 crore a year. “They can’t carry out interstate outward supply of goods, or operate via e-commerce, or supply non-GST items like alcohol,” he says and points out that “the composition scheme involves less paperwork.”

Hoteliers’ take

P C Rao, president, Bruhat Bangalore Hotels Association, says he has never received a complaint against composition scheme restaurants collecting GST from customers.

“People can file a complaint with the GST department if they think they are being cheated,” he suggests. A lawyer says customers could also file a cheating case at the nearest police station.

Who’s who

The tax authorities tweeted: “As per GST law, a person registered as composition taxpayer cannot issue taxable invoice and can neither collect GST from his customers nor can claim input tax credit on his purchases.” So how can you tell if the restaurant you visited is under the regular scheme or the composition scheme? Enter the GST number printed on the bill on the GST portal and look under the section ‘Taxpayer Type’, an awareness video created by social media handle GR Finvisors, says.

Where’s the board?

Composition scheme restaurants must declare their status on a board on their premises and also on the bill. But the rule is being ignored in Bengaluru, tax experts say.