In 2017, the GST Council cut restaurant tax rates from 18% to 5%. Everyone cheered. But there was a catch: Input Tax Credit (ITC) was removed.
The Math: Where You Lose Money
Imagine you run a fine-dine restaurant in Mumbai. Your rent is ₹5 Lakhs/month.
| Expense Head | Amount | GST Paid (18%) | Can you Claim it? |
|---|---|---|---|
| Rent | ₹5,00,000 | ₹90,000 | NO |
| Marketing | ₹1,00,000 | ₹18,000 | NO |
| Kitchen Equipment | ₹2,00,000 | ₹36,000 | NO |
| Total Loss per Month | ₹1,44,000 | ||
Because you are in the 5% scheme, the ₹1.44 Lakhs GST you paid to your landlord and vendors becomes a COST, not an asset. You cannot adjust this against your output liability.
Who is this bad for?
High Rent Locations
Malls, Airports, High Streets.
Cloud Kitchens
Heavy spend on Swiggy/Zomato Ads (18% GST).