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Restaurants, which lost input tax credits when the goods and services tax was reduced for eateries, want the benefit restored for a major expense component i.e. rent.

A little over a week after GST was slashed to 5% for cafes and diners, restaurant associations have planned to approach the finance ministry to seek input tax credit on rent. They said rent is a critical fixed cost, especially for outlets operating in prime locations in metros and at airports.

The GST Council recommended earlier this month that GST for restaurants be cut to 5% with no input tax credit from 18% previously with input credit. However, eating out didn’t become cheaper in many cases because some restaurants increased the base price of items to offset the credit loss.    The National Restaurant Association of India plans to send representations to the finance ministry on this matter.

Restaurants were denied input credit after it was found that they had not passed on the benefits to customers. Tax officials have sought details about menu prices before and after the GST rate cut, which was effective November 15. The move followed reports of some chains raising prices. The government is keen to ensure the benefit of GST reduction is passed on to consumers.  Many restaurants and lounges that operate in airports pay steep rents, which are converted to licence fees.

Any other business also gets input credit on these expenditures. Why should restaurants be differentiated?