February 20, 2023

Domestic Food Expenditure - Buy More To Pay Less Tax

Goods and Services Tax (GST) is a value-added tax levied on various goods and services in India. It replaced multiple indirect taxes such as Excise duty, VAT, and Service Tax and made the tax system more transparent and simple. GST is divided into Central GST (CGST) and State GST (SGST), which are collected by the Central Government and State Governments, respectively.

The GST on food items is a crucial aspect for Indian SMEs and Startups. Food items are divided into three categories - taxable, exempt, and zero-rated. Taxable food items are charged at a flat rate of 5%, while exempt food items are not taxed. Zero-rated food items are charged at 0% GST, but input tax credit can be claimed on them.

One way to reduce the tax burden on food expenditure is to increase the amount of taxable food items purchased. When more than 20% of taxable goods are purchased, the business can claim Input Tax Credit (ITC) on them. This means that the tax paid by the business on purchases can be adjusted against the tax collected on sales. Therefore, businesses can reduce their net tax liability by increasing their taxable food expenditure.

Another way to reduce the tax liability is to ensure that invoices are accurate and up-to-date. GST requires that all invoices include specific details such as the GST number, invoice number, and the amount of tax paid. It is also important to ensure that invoices are generated on time, as late invoices can lead to a delay in claiming the ITC.

Businesses can also benefit from the GST composition scheme, which is available for SMEs with a turnover of less than Rs. 1.5 crores. Under this scheme, businesses can pay a fixed percentage of their turnover as tax and are not required to maintain detailed records like other businesses. However, businesses under this scheme are not eligible for ITC.

Overall, businesses can benefit from the GST system by carefully managing their food expenditure and ensuring that invoices are accurate and timely. By implementing these practices, businesses can reduce their tax liability and increase their profitability.


Deductions under Section 80CCD of Income Tax
Inter-State Supply or Intra-State Supply under GST Laws
GST: Matters to be treated as Supply and not to be treated as Supply

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