The year 2017 changed the definition of tax for both the experts and the taxpayers with the introduction of GST (Goods and Services Tax). It affected all the industries in the way they function and one of them is the food serving industry. Where some people found it beneficial for both the owners and the consumers, others struggled to understand its various aspects. One such aspect is the tax-saving practices that the restaurants can follow to enjoy maximum benefits. Where some restaurants already know these practices, others may find the information given below as useful for their business.
Things you should know and do, as a restaurant owner, for tax saving –
Things you need to know as a taxpayer
As a restaurant owner, one must understand the GST slab before following tax-saving practices. Under GST, restaurants have been divided into three categories; stand-alone restaurants, outdoor caterings, and restaurants with hotels. Irrespective of their turnover, a four-tier tax structure of 5%, 12%, 18%, and 28% needs to be followed by every restaurant. The 5% GST applies to all types of restaurants, while other rates are applied depending upon the facility of air condition at the restaurant and if alcohol is served at the restaurant.
Also Read: Why Income Tax Return Filing Is Important
Practices that you can follow for maximum tax saving
Once you know the tax slab and tax structure, the following practices can help to save the tax.
Cost of goods sold
The restaurants need to purchase the raw material and some finished goods like packaged drinking water and juice and other drinks. This requires inventory management and the difference between the initial and ending inventory is called as cost of goods sold. This cost of goods sold is considered a type of expense and qualifies for the deduction from the gross income and hence saving tax. Things that can be included in this expense is the cost of products, the cost of raw material, the cost of freight, the cost of storing raw material and finished product, cost of labour and factory overheads.
Compensation of the employees
While hiring staff for the restaurants, recruiting people like disabled people and ex-members of the armed forces entitles the restaurant for tax benefits. Similarly, compensation, medical benefits, retirement plans provided to the employees, are all deducted from the total income of the business and thus save the tax.
Keeping a record of every purchase done for business helps quick and fair access f\to all the expenses that can be deducted from the income. It is usually advised to maintain both hard and soft copies of all the records to avoid discrepancies.
Also Read: 9 Common Tax Mistakes You Should Never Make
Managing the cost of equipment
A restaurant owner spends a good amount on various equipment required in the restaurant. This cost can be deducted at once in the year when the equipment was purchased or in smaller amounts in consecutive years as the value of the equipment reduces because of repetitive use.
Not all restaurant owners own the property. However, owning the property at the location with small footfall and low sales might not help the business. While having a place on rent at a location that has ample target customers, will not only help in business growth but the rent will also stand eligible for a tax deduction.
Managing the transportation cost
For the restaurants that provide outdoor services or delivers food to the customers, the transportation cost accounts for a good amount of share in the expenses. It can be included as either the distance traveled or the cost incurred for traveling. The same option, of counting transportation in expenses, needs to be followed in a certain consecutive year. Only the restaurant owners understand that the business is not as fancy as it appears. However, following the above practices can help them to reduce their taxes.
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