Cloud kitchens are restaurants, ice cream is not food and other important clarifications that will affect GST rates

• The 45th meeting of the GST council has clarified matters pertaining to the rate of GST applicable on several services.
• This includes cloud kitchens, alcoholic liquor, ice cream parlours among others.
• Check out the latest news and updates on Business Insider.

The Goods and Services Tax (GST) regime was introduced in 2017 in India to simplify the consumption-based tax system, but several dozens of issues and complexities remain in the system more than four years after its introduction.

One of the reasons behind this is the ever-evolving business landscape – for instance, while cloud kitchens have been around in informal setups for a long time now, the formal sector has only caught up recently largely due to the Covid-19 pandemic.

With many of these cloud kitchen companies coming under the ambit of GST due to an explosion in popularity, it’s important to understand how the government looks at them, so they can collect GST at the applicable rate.

To clear the confusion and clarify what rate of GST is applicable on many of these services, the government has issued a circular that goes into each category’s detail. Here is a summary:

Cloud kitchens are restaurants

The GST council has clarified in its circular that cloud kitchens provide the same services that a restaurant does, and as such, they would be covered under the definition of a restaurant under the act. This includes regular restaurants, cafes, takeaway services, room services and food delivery services.

This means that cloud kitchen firms will have to charge GST at the rate of 5%, without taking any input tax credit (ITC), under the GST composition scheme.

Alternatively, they can charge GST at the rate of 18% if they want to claim input tax credit.

Ice cream parlours are not restaurants

Another important aspect that affects consumers directly is whether ice cream parlours are to be considered as restaurants or not. The council observed that ice cream parlours do not engage in any form of cooking at any stage, and as such, are not covered under the scope of restaurants. It noted that these parlours sell already-manufactured ice cream.

As such, this would attract GST at 18% and not 5%.

Amusement parks with rides

The council clarified that amusement parks, which have casinos or race clubs, will have to charge GST at the rate of 28% on the services provided by them. However, if these parks do not have casinos or race clubs, or if they do not provide access to them, the applicable GST rate will be 18%.

Coaching services to students with disabilities

The council clarified that coaching institutes and non-governmental organisations (NGOs) which provide coaching services under the central government’s “Scholarships for students with disabilities” scheme are exempt from GST, and as such, there will be no GST on the coaching services offered by them.

Alcoholic liquor is not food

Firms which manufacture alcoholic liquor for human consumption for brand owners will have to charge GST at the rate of 18%. A clarification was sought whether alcoholic liquor is covered under the definition of food and food products, and the GST council underlined that alcoholic liquor is excluded from the purview.

As such, this would attract GST at 18% and not 5%, which is otherwise applicable on food and food products.

SEE ALSO:

Can you claim input tax credit on CSR expense ⁠— three authorities have two different rulings

Supreme Court’s landmark ruling in the Samsung Heavy Industries case could have a positive effect on ease of doing business in India

These are the common laws that you may be inadvertently breaking in India