As a business owner, one of the most stressful tasks is to file taxes for your business. If you are in the Food & Beverage industry, you know how challenging it can be to calculate and pay taxes for buying raw materials, creating the product, and selling it to the customer.
In India, Goods & Services Tax (GST) was introduced in 2017 to streamline the taxation process and simplify it by making one single tax-GST instead of State Value-Added Tax (VAT), Central Excise and Service Tax, Entry Tax and a few other indirect taxes. Before GST on a restaurant, a restaurant used to charge anywhere between four to six different indirect taxes.
The government introduced the Goods & Services Tax in July 2017 to eliminate multiple indirect taxes (like VAT, excise duty, and service taxes) and replace them with a single multi-stage, destination-oriented tax. In the GST regime, tax is charged at each point of sale.
GST on restaurants can range from 5%, 8%, or 18%, depending on establishment type, location and food type. On food items, GST rates range from nil to 18%. Initially, when the GST was implemented, restaurants without air conditioning were charged 12% GST, while restaurants with AC or a liquor license had to pay 18% GST. Restaurants in five-star hotels were levied 28% GST.
GST Registration for Restaurants
Any restaurant with a turnover of INR 20 Lakhs or more must register for GST under Indian law. Moreover, restaurants in special category states will require GST registration for their restaurant if turnover crosses INR 10 lakhs and more.
Restaurants need a photograph of the restaurant owner, partnership deed (in case of partnership firm), the restaurant’s electricity bill, tax receipt, bank statement/passbook, etc., for the registration process. They can go to the GST portal and fill out the form to register their restaurants.
To find out more about the registration process, read our blog here.
GST on Different Types Of Restaurants and Food
Know how much GST is payable for different types of restaurants and food items.
|Restaurant Type||Applicable GST Rate|
|Standalone restaurants (providing food services including takeaway facility)||5% without ITC|
|Railways/IRCTC provided food services||5% without ITC|
|Cafes/Mess/Canteen operating on a contractual basis||5% without ITC|
|Restaurants within a hotel (with room tariff less than INR 7500)||5% without ITC|
|Restaurants within a hotel (with room tariff more than or equal to INR 7500)||18%|
|Independent outdoor catering/food delivery services||5% without ITC|
|Food services provided at exhibitions, events, and conferences (which are event-based, occasional)||18%|
* ITC is Input Tax Credit, explained below.
|Food Items||Applicable GST Rate|
|GST on milk and other dairy products||Nil|
|Fresh and dry vegetables like potatoes, onions, and other leguminous vegetables||Nil|
|GST on uncontained fresh meat, fish||Nil|
|GST on container-packed vegetables||Nil|
|GST on dried vegetables which are packed in a container under a registered brand name||5%|
|GST on processed ginger, turmeric, thyme, curry leaves, among others||5%|
|GST on vegetables, fruits, nuts which are preserved using sugar||12%|
|GST on chocolate and other cocoa-based edibles||18%|
Effect of GST on Restaurants
Know how GST affects your restaurant business.
1. One-Stop Tax
GST was implemented to replace several indirect taxes. GST on a restaurant makes it easier for restaurant managers to do their compliance work, where they have to comply only under one law, instead of multiple rules, like the service tax on accommodation, luxury tax on rooms, and entertainment tax on event tickets.
2. GST Composition Scheme
GST composition scheme is a tax-paying mechanism offered to small businesses, wherein they get reduced paperwork, compliance and lower tax liability. For instance, generally, taxpayers have to file three monthly and one annual return, but if they apply under the scheme, they only have to submit one monthly and one annual return.
Restaurants can register under the GST composition scheme if their annual turnover is less than INR 100 lakh. Restaurants registered under the GST composition scheme must pay GST at 5% of aggregate turnover.
3. Input Tax Credit (ITC)
ITC means claiming credit of the GST paid on purchasing any goods or services for expanding the business. For example, a manufacturer produces a tax of INR 300 to buy raw materials, and when they sell the final product, they collect INR 450 in taxes. The manufacturer will need to pay INR 450 to the government but can claim ITC and allow deduction of the earlier tax paid amount. Thus, they need to pay only INR 150 at a later stage.
In the case of restaurants, the ITC benefit is available only to restaurants charging 18% GST. So restaurants charging 5% GST (as per the above table) cannot claim ITC benefits.
4. GST Exclusions
The following items are excluded from GST.
- Fresh milk
- Fresh and dry vegetables like potatoes, onions, and other leguminous vegetables
- Unroasted coffee beans, green tea leaves that are not processed
Do you know Service charge is different from service tax? Service charge is an optional fee charged by restaurants, equivalent to tips. Restaurants must clearly display the service charge so that the customers are well informed about them before availing of the services.
It can be tricky to do taxes for your restaurant. We hope you find this blog helpful and find all the required information about GST. Subscribe to our newsletter and follow us on Instagram for regular restaurant-related updates.