GST on Restaurants in India
The Goods and Services Tax (GST) is a single, unified indirect tax system implemented in India in July 2017. It streamlined the previous intricate system of indirect taxes, including VAT and service tax, creating a more transparent and efficient tax structure for businesses and consumers. The GST levied on restaurants is a significant component of this new tax regime, impacting both restaurant owners and diners. This article provides a comprehensive overview of GST as it applies to the restaurant industry in India, covering rates, calculations, exemptions, special provisions, and recent updates.
Contact Author CA Satbir singh on Taxheal@gmail.com
Exemptions and Special Provisions
While most restaurant services are subject to GST, certain exemptions and special provisions exist:
- Composition Scheme: Small restaurants with an annual turnover of up to ₹1.5 crores (₹1 crore for special category states) can opt for the GST Composition Scheme1. This scheme allows them to pay GST at a fixed rate of 5% on their total turnover, with simplified compliance procedures1. However, restaurants opting for this scheme cannot claim Input Tax Credit (ITC)1. To identify restaurants under the Composition Scheme, look for the words “composition taxable person, not eligible to collect tax on supplies” printed at the top of the bill of supply. Additionally, these restaurants must display the words “composition taxable person” on every notice or signboard displayed at their place of business3.
- Exempt Food Items: Most fresh and frozen food items, such as fruits, vegetables, meat, and fish, are exempt from GST4. Only packaged food items with brand names are subject to GST4. It’s important to note that no food items are currently taxed at the highest GST rate of 28%4.
- Voluntary Registration: Restaurants with an annual turnover below the threshold of ₹20 lakhs in most states and ₹10 lakhs in special category states can voluntarily register for GST1. This allows smaller businesses to benefit from the GST system, such as claiming ITC.
- GST Rate on Food Items: The table below provides a detailed breakdown of GST rates applicable to various food items: 5
| Particulars | GST Rate |
|---|---|
| Fresh and/or chilled vegetables | Nil |
| Frozen vegetables | Nil |
| Dried vegetables that are packaged and labelled | 5% |
| Dried leguminous vegetables other than pre-packaged and labelled | Nil |
| Dried leguminous vegetables that are pre-packaged and labelled | 5% |
| Fresh/dried coconuts, grapes, apples, bananas, and pears, among others | Nil |
| Fruits like grapes, apples, bananas, pears, mangoes, citrus fruits, and berries, among others | Nil |
| Vegetables, fruits, nuts, and edible plant parts that are preserved using sugar | 12% |
| Fruits, nuts, and edible plant parts that are preserved and/or prepared using vinegar and/or acetic acid | 12% |
| Fresh milk, pasteurised milk (excluding UHT milk), and milk and cream (not concentrated nor contains added sugar or sweeteners) | Nil |
| Milk and cream that is concentrated or contains added sugar or sweeteners | 5% |
| Curd, lassi, and buttermilk, other than pre-packaged and pre-labelled | Nil |
| Curd, lassi, and buttermilk that is pre-packaged and pre-labelled | 5% |
| Yoghurt and cream, whether containing sugar/flavouring or not | 5% |
| Fresh or chilled meat and fish | Nil |
| Meat that is packaged and labelled | 5% |
| Birds’ eggs in shells | Nil |
| Birds’ eggs which are not in a shell | 5% |
| Rice other than pre-packaged and labelled | Nil |
| Rice, pre-packaged and labelled | 5% |
| Wheat or meslin (i.e. maize flour) other than pre-packaged or labelled | Nil |
| Wheat or meslin, pre-packaged and labelled | 5% |
| Rye other than pre-packaged and labelled | Nil |
| Rye, pre-packaged and labelled | 5% |
| Cereal flours other than of wheat or meslin, rye, etc., pre-packaged and labelled | 5% |
| Chocolate and food preparations containing cocoa | 18% |
GST Rates Applicable to Restaurants
The GST rate for restaurants in India is not uniform and depends on various factors, including the type of establishment and the nature of services offered. Here’s a breakdown of the GST rates applicable to different types of restaurants:
| Type of Restaurant | GST Rate | ITC Eligibility |
|---|---|---|
| Standalone Restaurants (including takeaway) | 5% | No |
| Restaurants within hotels (Room Tariff < ₹7,500) | 5% | No |
| Restaurants within hotels (Room Tariff ≥ ₹7,500) | 18% | Yes |
| Outdoor Catering | 18% | Yes |
| Outdoor Catering within hotels (Room Tariff < ₹7,500) | 5% | No |
| Restaurants Serving Alcohol (food and non-alcoholic beverages) | 18% | Yes |
| Railway Catering (food services by Indian Railways/IRCTC) | 5% | No |
| Airport Restaurants | 18% | Yes |
The rationale behind these different rates is linked to the perceived luxury and convenience associated with each service. Dining-in, takeaway, and home delivery services are taxed uniformly at 5%, while catering services may fall under either the 5% or 18% slab based on factors like venue and package inclusions6.
Recent Updates:
Starting April 1, 2025, high-end hotels will have the option to choose between two GST rates for their restaurant services: 5% without ITC or 18% with ITC. This change aims to provide flexibility to the hospitality sector and potentially benefit consumers7. To exercise this option, hotels must submit a declaration at the beginning of the financial year or upon obtaining registration 9. This shift from “declared tariff” to “actual value of supply” for determining GST rates on hotel accommodations aims to create a more transparent and accurate system7.
Input Tax Credit (ITC)
Input Tax Credit (ITC) is a mechanism under GST that allows businesses to reduce their tax liability by claiming credit for the GST paid on their inputs (goods and services used in their business)1. In the context of restaurants, ITC eligibility depends on the GST rate applicable to their services. Restaurants that are subject to an 18% GST rate, such as those within hotels with room tariffs of ₹7,500 or more, are eligible to claim ITC1. However, restaurants paying GST at 5% cannot claim ITC1.
To claim ITC, restaurants need to maintain proper documentation, including invoices, bills, and receipts mentioning the GST paid on inputs1. The ITC claimed can be used to offset the restaurant’s GST liability, reducing the amount of tax payable to the government1.
Pre-GST Restaurant Billing
Before the implementation of GST, restaurant bills in India included a combination of various indirect taxes, such as VAT and service tax10. For example, a restaurant bill might have included VAT at 12.5% and service tax at 15%. This complex system often led to confusion and higher tax burdens for both restaurants and consumers.
The introduction of GST simplified this structure by subsuming multiple taxes into a single GST rate10. This has streamlined the billing process and made it easier for consumers to understand the tax component of their restaurant bills.
GST Calculation on Restaurant Bills
GST on restaurant bills is calculated by multiplying the taxable value of the food and beverages by the applicable GST rate. Here’s a simplified example:
Example:
Imagine you dine at a standalone restaurant and your food bill amounts to ₹1,000. The applicable GST rate is 5%.
- GST Calculation: ₹1,000 x 5% = ₹50
- Total Bill: ₹1,000 + ₹50 = ₹1,050
It’s important to note that service charges levied by restaurants are separate from GST5. While service charges go directly to the restaurant, GST is collected by the restaurant and remitted to the government.
To ensure transparency in billing, GST invoices issued by restaurants must include the following essential details: 1
- Restaurant’s name, address, and GSTIN (Goods and Services Tax Identification Number)
- Customer’s name, address, and GSTIN (if registered under GST)
- A consecutive serial number for the invoice
- Date of issue
- Description of food and beverages supplied
- Taxable value and applicable GST rate
- Total amount payable
Service Charge vs. Service Tax
It’s crucial to understand the distinction between service charge and service tax. Service tax is a tax levied by the government on services provided, and under the GST regime, it is included in the GST amount10. Therefore, customers are not required to pay service tax separately.
On the other hand, service charge is an amount charged by the restaurant for the services they provide10. This amount goes directly to the restaurant and is not a tax levied by the government. Currently, there are no specific guidelines on the limitation of service charges imposed by restaurants.
Record-Keeping and Compliance
Restaurants must adhere to specific record-keeping requirements to comply with GST regulations: 1
- Invoices and GST Records: Maintain records of all invoices issued and received. Keep track of GST paid and collected.
- Expense Records: Document all expenses incurred, including rent, electricity bills, raw materials, and equipment used in the restaurant.
- Duration for Record Retention: These records should be retained for at least 6 years.
Recent Updates:
The due date for filing GSTR-4 for FY 2021-22 has been extended with a late fee waiver until July 28, 20223. This provides relief to restaurant owners who opted for the Composition Scheme.
GST Returns Filing for Restaurants
Restaurants are required to file different types of GST returns based on their registration and turnover. The main types of GST returns for restaurants are: 2
- GSTR-1: This return is a sales report where restaurants list all the food and beverages they sold. The filing frequency for GSTR-1 depends on the restaurant’s turnover.
- GSTR-3B: This return is a summary of the restaurant’s sales and expenses. Restaurants pay the GST they owe through this return. GSTR-3B needs to be filed every month.
- GSTR-9: This is an annual return that provides a yearly recap of the restaurant’s GST-related transactions. It’s like a yearly summary of all the numbers from the monthly returns.
Other Recent GST Updates
The GST Council has recommended reducing the GST rate on Fortified Rice Kernels (FRK) to 5%11. This change aims to promote the consumption of fortified rice and improve nutrition.
Impact of GST on the Restaurant Industry
The implementation of GST has had a significant impact on the restaurant industry in India. It has brought about both benefits and challenges:
Benefits:
- Simplified Tax Structure: GST has replaced a complex web of indirect taxes with a single, unified tax system. This has simplified tax compliance for restaurant owners and made it easier to understand the tax component of restaurant bills12.
Challenges:
- Varying Rates and ITC Complexity: The different GST rates applicable to various types of restaurants and services can create complexities in tax calculation and ITC claims13.
- Cost Management: Restaurants opting for the lower GST rate (5%) without ITC face challenges in managing costs, as they cannot claim credits for taxes paid on inputs13.
Conclusion
The GST regime has brought about significant changes in the restaurant industry in India. While it has simplified the overall tax structure, the varying GST rates, ITC provisions, and compliance requirements have presented challenges for restaurant owners. Consumers have also experienced changes in their dining expenses, with GST adding to the overall cost of restaurant bills.
The recent updates to GST rates for high-end hotels, effective from April 2025, aim to provide more flexibility and potentially benefit consumers. The shift from “declared tariff” to “actual value of supply” for determining GST rates on hotel accommodations is a positive step towards creating a more transparent and accurate system.
Looking ahead, the GST regime is expected to continue evolving, with further refinements and adjustments to address the specific needs of the restaurant industry. It’s crucial for both restaurant owners and consumers to stay informed about the latest GST rates and regulations to ensure compliance and make informed decisions.
Works cited
- GST for Restaurants in India: A Comprehensive Guide – IndiaFilings, accessed January 26, 2025, https://www.indiafilings.com/learn/gst-for-restaurants-in-india-a-comprehensive-guide/
- GST Registration Limit for Restaurants – Vakilsearch, accessed January 26, 2025, https://vakilsearch.com/blog/gst-registration-limit-for-restaurants/
- Restaurants Under GST Composition Scheme – ClearTax, accessed January 26, 2025, https://cleartax.in/s/gst-composition-scheme-restaurants
- GST on Food Items & Restaurants – Rules and Rates on Food – Razorpay, accessed January 26, 2025, https://razorpay.com/learn/gst-on-food-and-restaurants/
- groww.in, accessed January 26, 2025, https://groww.in/p/tax/gst-on-food-and-restaurants
- Everything You Need to Know About GST for Restaurants in India – BharatNXT, accessed January 26, 2025, https://web.bharatnxt.in/blog/gst-for-restaurants-in-india/
- Changes in GST rates for hotels and restaurants in year 2025! – CashFlo, accessed January 26, 2025, https://www.cashflo.io/magazine/changes-in-gst-rates-for-hotels-and-restaurants-in-year-2025
- Customers likely to gain as high-end hotels get GST options on dining – Business Standard, accessed January 26, 2025, https://www.business-standard.com/economy/news/customers-likely-to-gain-as-high-end-hotels-get-gst-options-on-dining-124122500662_1.html
- GST Changes for Hotel and Restaurant Services – CA GuruJi, accessed January 26, 2025, https://taxupdates.cagurujiclasses.com/gst-changes-for-hotel-and-restaurant-services/
- GST on Food and Restaurant Services – Rules & Rates on Food – Aditya Birla Capital, accessed January 26, 2025, https://www.adityabirlacapital.com/abc-of-money/should-you-be-paying-service-tax-after-paying-gst
- Recommendations of the 55th Meeting of the GST Council – PIB, accessed January 26, 2025, https://pib.gov.in/PressReleasePage.aspx?PRID=2086873
- GST on Restaurant Food: Roles, Rates, Impact, ITC, Taxation – Vakilsearch, accessed January 26, 2025, https://vakilsearch.com/blog/gst-on-food/
- ‘Understanding GST on Restaurant and Food: Rules & Rates’ – TaxBuddy.com, accessed January 26, 2025, https://www.taxbuddy.com/blog/gst-on-restaurant-and-food