HomeManagementGST on Restaurant: Rates & Rules Every Restaurateur Must Know

GST on Restaurant: Rates & Rules Every Restaurateur Must Know

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. 

Know all about restaurant GST requirements.
Interestingly, alcoholic beverages still get applicable under Value Added Tax (VAT), a state-level tax. Thus, restaurants serving alcohol will have to charge only GST for food and non-alcoholic beverages and VAT on alcoholic beverages. 

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 services5% 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 productsNil 
Fresh and dry vegetables like potatoes, onions, and other leguminous vegetablesNil 
GST on uncontained fresh meat, fishNil 
GST on container-packed vegetablesNil 
GST on dried vegetables which are packed in a container under a registered brand name5%
GST on processed ginger, turmeric, thyme, curry leaves, among others5%
GST on vegetables, fruits, nuts which are preserved using sugar12%
GST on chocolate and other cocoa-based edibles18%
What are the effects of GST regime on restaurants?
Do you know takeaway food is subjected to 18% GST?

Effect of GST on Restaurants

Know how GST affects your restaurant business. 

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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 
  • Eggs
  • Fresh and dry vegetables like potatoes, onions, and other leguminous vegetables
  • Unroasted coffee beans, green tea leaves that are not processed
Know all about GST on a restaurant.

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. 

Abeera Dubey
Abeera Dubey
Abeera is a freelance content writer at Petpooja.

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