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Impact of GST on Canteen Services

The wedding season in India needs no introduction. With all the glitz and glamour and half a dozen outfits for different functions such as haldi, mehendi, sangeet, etc., it seems no different than a festival of sorts. You get to meet your cousins, your relatives, that NRI aunt and her chihuahua, your friends, etc. However, for people like me, the main motivation to attend the wedding is the large spread of lip smacking food and drinks catered to the guests during the numerous functions.

It isn’t wrong to say that the catering service plays a very important role in parties, functions and events. Catering services have evolved over the years and has become more of an artisanal affair. Catering is a business where food and drinks are provided in remote sites, hotels, pubs, or other locations. GST has taken different types of businesses under its wings and catering business is one of them.

Let us understand the impact of GST on the outdoor catering business in this article.

GST Rate

The supply of service which is in the nature of ‘outdoor catering’ and is provided by a caterer (a person who provides, directly or indirectly, food or food related operations) will be liable to pay GST at the rate of 18% as decided by the Gujarat Authority of Advance Ruling (AAR). This ruling was to specifically determine whether food supplied to a canteen in factories/ business establishment is considered as “Catering” or “canteen services”.

Full ITC Allowed

When a person receives the supply of service and goods, he has to pay input tax which he can use for his business. Here, in case of the catering business, the input tax credit is allowed for making the GST payment for the supply of foods and drinks for outdoor catering. Therefore, a caterer is liable to pay GST at the rate of 18% with full Input Tax Credit. The credit availability, however, is subject to the online filing by the supplier.

Impact on Cash Flow

The GST payment arises on advances taken as the advances received in the catering business are made taxable under the time of supply provision. If it is an interstate purchase, it becomes taxable under GST rather than 2% CST rates charged during the pre-GST regime. Moreover, full credit for purchases is allowed for food and drinks for outdoor catering. The discounts given to the vendor or customer are to be examined for tax impacts. In case of provisioning the customers, more caution is to be taken.

Impact of GST on Output Pricing

Under the GST regime, the outside catering business attracts 18% GST, and the canteen service attracts 5%. GST has an impact on the output pricing, and they can be explained as follows:

  1. The impact of FOC (free) supply of goods and services are to be now constituted in supply.
  2. The inputs for fruits, vegetables and basic food will be exempt from tax while the output will be taxable.

While it was clarified that the catering services provided to the educational institutions and railways are to be taxed at 5%, the services provided to the industry and office canteens had remained in the dark. Gujarat AAR now clarifies this ambiguity.

When is GST Payable?

For making the payment of GST for the catering business, the earliest of the date given below should be considered as the time of supply.

  • When the invoice is issued to the customer; or
  • When the invoice is not issued to the customer within 30 days starting from the date of supply of service; or
  • Date of receipt of the services in the service recipient’s books of account

The rollout of GST has impacted a lot of industries, and though the rates may not be as expected by different businesses, it has been welcomed in the country. New amendments and rules are being set, still, for GST to make it a successful taxation regime and also to bring some ease to the industries. The different rates for somewhat same services might be confusing for the people which is why understanding every aspect of it is necessary.

[ Read: Impact of GST on the Indian Economy ]

If you have any problems regarding GST, the experts at H&R Block India are here to help you. Leave your GST tax filing and other worries to us and focus solely on your generating revenue you’re your business.

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CA Ankita Mathur
CA Ankita Mathur
Ankita, a Big 4 alumna, is a tax expert at H&R Block (India) with vast experience in managing GST-related business services. An avid traveller, Ankita is a regular contributor to the CAclubindia and loves helping people understand about GST and helping companies be GST compliant.