GST on Restaurant and Food: A Guide on Rules and Rates
Food services in India are subject to Goods and Services Tax, which varies based on several factors such as the institution type and location of the restaurant or food service provider. The tax might be 5%, 12%, or 18%. The previous VAT and service tax scheme was superseded by the introduction of GST on food services; nonetheless, the service charge levied by restaurants remains distinct from the GST. Notably, state-level VAT is still applied to alcoholic beverages. As a result, restaurants that offer both food and drinks will have different taxes; food and non-alcoholic beverages will be subject to GST, while alcoholic beverages will be subject to VAT. In addition to food services, the general public's purchases of food items are subject to GST, which currently ranges from 0% to 18%. The essential rates for GST on food services and goods will be covered in the sections that follow.
Table of Contents
Pre-GST Treatment of Restaurant Bills
As customers, we seldom ever look at our food bills at these establishments, and the majority of us have no idea what's in them. You will find that Service Tax, Service Charge, and VAT have been added to your food bill from the pre-GST fine-dining experience, in addition to the food value. Let's first examine the bill's components:
VAT: This is the tax applied to the food-related component of your bill.
Service tax: The tax assessed on the services that the restaurant provides is known as the service tax. [The government had already split the food and service portions and levied taxes appropriately to prevent needless problems.]
Service charges: The government does not impose the service charge; rather, the eateries do. This is not a tax. It should not be mistaken for service tax because it is a source of revenue for the hotels. Service tax, on the other hand, is just a tax that is collected from you and given to the government; it is not considered income.
The current rates under the GST are very different from what you would have before the shift in tax laws.
GST Compliance for Restaurants
The implementation of the Goods and Services Tax (GST) in India has significantly impacted the restaurant industry, requiring restaurants to adhere to new tax structures and compliance requirements.
Requirements for GST Registration for Restaurants
Restaurants are required to register for GST if their annual turnover exceeds the threshold limit set by the government, which is typically Rs. 20 lakhs (Rs. 10 lakhs in special category states). However, certain circumstances may necessitate GST registration even if the turnover is below the threshold, such as:
Restaurants engaged in inter-state supply of goods or services.
Restaurants operating through an e-commerce platform.
Restaurants providing taxable services and choosing to opt for GST.
To register for GST, restaurants must:
Apply Online: Complete the registration process on the GST portal (https://www.gst.gov.in/) by providing the necessary documents, including PAN card, business address proof, and bank account details.
Obtain GSTIN: Once registered, the restaurant receives a unique GST Identification Number (GSTIN), which must be displayed on all invoices and at the place of business.
Invoicing and Billing under GST
Invoicing under GST requires adherence to specific guidelines to ensure compliance. Restaurants must issue GST-compliant invoices that include the following details:
Name, address, and GSTIN of the restaurant.
Name, address, and GSTIN of the customer (if registered).
Unique invoice number and date of issue.
Description of goods or services provided.
Applicable GST rate and the amount of GST charged (CGST, SGST, or IGST).
Total value of the supply, including tax and net value.
For businesses providing both goods (e.g., packaged foods) and services (e.g., dining experience), the invoice should clearly segregate the two, ensuring the correct GST rate is applied. It is crucial for restaurants to keep accurate records of all invoices issued, as they form the basis for filing GST returns.
Filing GST Returns and Payment of Taxes
Restaurants are required to file regular GST returns, which include:
GSTR-1: A monthly return detailing all outward supplies (sales) made during the month. This includes the taxable value, tax amount, and customer details.
GSTR-3B: A monthly summary return providing details of total sales and purchases, input tax credit (ITC) claimed, and GST payable.
Annual Return (GSTR-9): An annual summary of the monthly returns filed during the financial year.
Filing these returns accurately and timely is essential to avoid penalties and interest. Restaurants must also pay the GST liability by the due date, which is usually the 20th of the following month for GSTR-3B.
GST Rules and Rates for Restaurant and Food
Restaurants are subject to either the 18% GST rate with ITC claims or the 5% GST rate without the ability to claim input tax credit (ITC). Depending on the restaurant's location, this rate is determined. For example, restaurants inside hotels when the room charge is more than the allotted amount will be subject to a higher GST rate. The tables below illustrate the GST rates that apply to food, catering, and restaurant services.
GST Applicable on Restaurant Services:
Type of Restaurants | GST Rate |
Standalone restaurants (including takeaway) | 5% without ITC |
Restaurants within hotels (with room tariff up to Rs 7,500) | 5% without ITC |
Normal or composite outdoor catering within hotels(with room tariff less than Rs 7,500) | 5% without ITC |
Standalone outdoor food delivery/catering service | 5% without ITC |
Catering services or food supplied by Indian Railways/IRCTC | 5% without ITC |
Restaurants within hotels (with room tariff exceeding Rs 7,500) | 18% with ITC |
Normal or composite outdoor catering within hotels (with room tariff exceeding Rs 7,500) | 18% with ITC |
GST Applicable on Food
Particulars | GST Rate |
Fresh and/or chilled vegetables | Nil |
Frozen vegetables | Nil |
Dried vegetables (packaged and labelled) | 5% |
Dried leguminous vegetables (other than pre-packaged and labelled) | Nil |
Dried leguminous vegetables (pre-packaged and labelled) | 5% |
Fresh/dried coconuts, apples, bananas, grapes, pears, etc. | Nil |
Fruits like apples, bananas, pears, grapes, mangoes, citrus fruits, berries, etc. | Nil |
Vegetables, fruits, edible plant parts, and nuts preserved using sugar | 12% |
Fruits, edible plant parts, and nuts preserved and/or prepared using acetic acid/acetic acid | 12% |
Fresh milk, pasteurised milk (not UHT milk), and milk and cream (not concentrated/containing added sugar or sweeteners) | Nil |
Milk and cream (concentrated or containing) added sugar or sweeteners | 5% |
Curd, lassi, and buttermilk (other than pre-packaged and pre-labelled) | Nil |
Curd, lassi, and buttermilk (pre-packaged and pre-labelled) | 5% |
Cream and yoghurt (containing sugar/flavouring or not) | 5% |
Fresh or chilled meat and fish | Nil |
Packaged and labelled meat | 5% |
Eggs in shells | Nil |
Eggs not in a shell | 5% |
Rice (not pre-packaged and labelled) | Nil |
Rice (pre-packaged and labelled) | 5% |
Wheat or meslin (not pre-packaged or labelled) | Nil |
Wheat or meslin (pre-packaged or labelled) | 5% |
Rye (not pre-packaged or labelled) | Nil |
Rye (pre-packaged or labelled) | 5% |
Cereal flours except wheat or meslin, rye, etc. (pre-packaged and labelled) | 5% |
Chocolate and food preparations with cocoa | 18% |
How GST Affects Restaurants and Food Items
Consumers: Those who dine out saw the simplicity of the bill following the introduction of the GST, since the restaurant GST rate replaced several taxes and cesses, including the Krishi Kalyan cess, service tax, and VAT, to mention a few. Additionally, clients saw a reduction in the effective tax on restaurant bills following the adoption of the GST. However, it was found that the cost savings for people who eat out is, at most, negligible. The service charge, which is still levied by the restaurant, is unaffected by GST.
Business Owners: After the advent of the GST, restaurant owners anticipated that the Input Tax credit, or ITC, would improve the availability of operating capital for their establishments. Conversely, the Input Tax Credit, or ITC, was eliminated when the GST was implemented. This suggests that they were unable to collect the GST they spent on rent and raw supplies. Later, changes were made that decreased restaurant owners' advantage from the ITC. It is noteworthy, therefore, that cafes and restaurants that charge 5% GST on food services are not eligible for ITC benefits; under the current GST regulations, this benefit is only available to companies that charge 18% GST.
Common Challenges and Issues
Challenges Faced by Restaurants in GST Compliance
Complexity in Rate Classification: The restaurant industry often deals with a variety of products and services, each attracting different GST rates. For instance, dining services in AC restaurants attract an 18% GST rate, while non-AC restaurants are taxed at 5%. This complexity requires careful categorization to avoid incorrect taxation.
Managing Input Tax Credit (ITC): Restaurants opting for a lower GST rate (5%) without ITC face challenges in managing costs, as they cannot claim credits for taxes paid on inputs. This can impact profitability, especially for those with high input costs.
Compliance with Invoicing Requirements: Ensuring all invoices are GST-compliant, particularly in high-traffic situations, can be challenging. Mistakes in invoicing can lead to discrepancies in tax filing and potential audits.
Dealing with Varying Tax Rates for Different Food Items
Restaurants often serve a variety of food items, some of which may be subject to different GST rates. For example, non-vegetarian items might attract a different rate than vegetarian items, or packed food items may have a different rate than those served fresh. This requires meticulous record-keeping and invoicing to ensure the correct rate is applied and reported.
Managing GST on Discounts and Promotional Offers
Restaurants frequently offer discounts and promotional offers to attract customers. The GST law requires the taxable value to be adjusted after accounting for such discounts, which can complicate the billing process. Proper documentation and adjustment entries are necessary to reflect the actual value of supplies and the corresponding tax liability.
Recent Updates and Changes
Recent Changes in GST Rates and Rules Applicable to Restaurants
The GST Council periodically reviews and updates the tax rates and rules applicable to various sectors, including the restaurant industry. Recent changes may include:
Rate Adjustments: Any changes in GST rates, such as a reduction or increase for specific categories of restaurants or food items.
Amendments in ITC Provisions: Changes in the eligibility criteria for claiming ITC, especially concerning capital goods and input services used in the restaurant business.
Simplification Measures: Initiatives aimed at simplifying GST compliance, such as introducing a new return filing format or reducing the frequency of filings for small businesses.
Government Clarifications and Circulars Impacting the Food and Restaurant Industry
Government clarifications and circulars often provide guidance on the interpretation of GST laws, helping restaurants navigate complex issues. For example:
Clarifications on the applicability of GST on bundled services (e.g., banquet services combined with catering).
Guidelines on the treatment of service charges collected from customers.
Instructions on handling GST for food delivery services through online platforms.
Conclusion
The restaurant and food industries have witnessed immense changes due to the implementation of GST. It has made taxation simpler and more transparent, but it has also made firms face a heavier tax burden. The Input Tax Credit's ability to be claimed, however, has had a mixed effect on costs. Notwithstanding the early difficulties, the GST system has resulted in a much-needed system change and might eventually help the industry. In the upcoming years, the GST rates for restaurants could alter as the government works to improve the system.
FAQ
Q1. What is the highest rate of GST applicable to the food segment?
The food industry has the highest GST rate of 28%, which is applied to some products like carbonated and caffeinated beverages.
Q2. Is there a nil charge of GST on some food items?
Yes, certain food items—like fresh fruits and vegetables, meat, fish, and so on—are exempt from the GST.
Q3. Is there GST on takeaway food?
Yes, GST is charged on food that is taken out. The percentage varies based on the restaurant's location, either 5% or 18%.
Q4. What is the HSN code for restaurant food?
The services offered by restaurants, cafes and similar dining establishments, such as takeaway, room service and food delivery to customers' doors, are covered by the current HSN code 996331. Services offered by cafes, restaurants, and other eateries that are similar include room service, meal delivery to your door, and takeaway services.
Q5. Can restaurants use the composition scheme to levy GST?
Restaurants that choose to use the composition plan must pay GST at the rate of 5% rather than 12% or 18%. Compared to the composition system, the usual scheme's rate of GST payable is substantially greater.
Q6. Is GST mandatory for food?
For a restaurant, GST registration is a requirement. Penalties and legal ramifications may arise from failing to obtain GST registration. Obtain the GST Registration by completing the form and sending in the necessary documentation.
Q7. Can restaurant GST be claimed?
Restaurants are eligible to receive an Input Tax Credit (ITC) on the GST they have paid on the inputs they utilise for their operations. This covers GST paid on supplies, rent, utilities, and other costs incurred by the business.
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