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GST is a single tax system started in India on July 1, 2017, replacing different indirect taxes like VAT and service tax to make tax filing easier and simpler. This aims to simplify the taxation process and create a single market across the country.
Understanding how GST applies to restaurant services is crucial for both consumers and business owners. The tax rate varies based on factors such as the type of establishment, location, and services offered. This article aims to clarify the applicability of GST on restaurant services in India, which will help readers navigate the complexities of restaurant taxation.
GST is aimed at simplifying the taxation process and creating a single market across the country. The following details will help you understand the role and impact of GST on restaurant services:
GST has standardized tax rates across various sectors, which include the restaurant industry. The tax rate for restaurant services varies based on factors such as the types of establishments, location, and amenities offered. Standalone restaurants typically attract a 5% GST rate without the option to claim Input tax credit (ITC), while restaurants within hotels may have different rates depending on the room tariff. This tiered system was designed to accommodate the diverse nature of the food service sector, from small eateries to luxury restaurants.
The introduction of GST has had a significant impact on the restaurant industry. GST replaced many indirect taxes with one simple tax, making it easier for restaurant owners to follow the rules. It also improved cash flow by allowing the smooth use of Input Tax Credit (ITC) on purchases and expenses. The varying tax rates based on establishment type and location have introduced complexities in pricing and compliance. GST has created a more transparent and uniform tax structure for the restaurant industry, which leads to reduced tax evasion and better compliance.
Under the GST system in India, restaurants are taxed differently based on where they are located and the type of service they offer. Let us discuss them briefly:
5% GST: For Most Standalone Restaurants
18% GST: For Restaurants in Expensive Hotels
The GST rates for restaurants in India are not the same for everyone. They depend on things like whether the place is air-conditioned, if it serves alcohol, and where it's located. The below mentioned details include the GST on restaurants:
Non-AC Restaurants (No Alcohol): 5% GST
AC Restaurants (No Alcohol): 12% GST
Restaurants Serving Alcohol: 18% GST
Restaurants at Airports: 18% GST
SL.No | Type of Restaurants | GST Rate |
---|---|---|
1 | Railways/IRCTC | 5% without ITC |
2 | Standalone restaurants | 5% without ITC |
3 | Standalone outdoor catering services | 5% without ITC |
4 | Restaurants within hotels (Room tariff < ?7500) | 5% without ITC |
5 | Normal/composite outdoor catering within hotels (Room tariff < ?7500) | 5% without ITC |
6 | Restaurants within hotels (Room tariff > ?7500) | 18% with ITC |
7 | Normal/composite outdoor catering within hotels (Room tariff > ?7500) | 18% with ITC |
The GST Composition Scheme is an easy, optional tax plan made to help small businesses pay taxes simply. Restaurants that are opting for this scheme pay a fixed tax rate of 5% on their total turnover, without the ability to claim ITC. This means they are unable to claim input tax credit, so the GST paid on purchases increases their overall tax burden. The scheme is ideal for small eateries focusing on local operations. ?
Eligibility Criteria
To qualify for the Composition Scheme, restaurants must meet the following eligibility criteria:
Key Features
The details below include the process of GST registration for restaurants:
You need to ensure you have the following documents before initiating the registration:
The below-mentioned details include the GST rates on popular food items, and this list is not exhaustive:
Particulars | GST Rate |
---|---|
GST on fresh and chilled vegetables | Nil |
GST on frozen vegetables | Nil |
GST on dried vegetables (packaged and labelled) | 5% |
GST on unpackaged, unlabeled dried legumes (lentils, beans, chickpeas) | Nil |
GST on dried, packaged legumes (labelled and sealed) | 5% |
GST on fresh or dried fruits (coconuts, grapes, apples, bananas, pears) | Nil |
GST on fruits like grapes, bananas, apples, mangoes, pears, berries, citrus fruits | Nil |
GST on fruits, vegetables, nuts, plant parts preserved/sweetened with sugar | 12% |
GST on fruits, nuts, plant parts preserved/prepared using vinegar/acetic acid | 12% |
GST on fresh, pasteurized milk and milk/cream without added sugar | Nil |
GST on milk and cream concentrated or with added sugar | 5% |
GST on curd, lassi, buttermilk (not pre-packaged and labelled) | Nil |
GST on pre-packaged and pre-labelled curd, lassi, buttermilk | 5% |
GST on yogurt and cream (with/without sugar or flavoring) | 5% |
GST on fresh or chilled meat and fish | Nil |
GST on packaged and labelled meat | 5% |
GST on bird’s eggs in shells | Nil |
GST on bird’s eggs (not in a shell) | 5% |
GST on rice (not pre-packaged and labelled) | Nil |
GST on rice (pre-packaged and labelled) | 5% |
GST on wheat or meslin (not pre-packaged and labelled) | Nil |
GST on wheat or meslin (pre-packaged and labelled) | 5% |
GST on rye (not pre-packaged and labelled) | Nil |
GST on rye (pre-packaged and labelled) | 5% |
GST on cereal flours other than wheat/meslin/rye (pre-packaged and labelled) | 5% |
GST on chocolate and food preparations containing cocoa | 18% |
GSTR-1: This return records all outward supplies or sales made in a tax period. It is filed monthly or quarterly based on turnover, usually by the 11th of the next month.
GSTR-3B: This monthly summary return shows total sales, purchases, input tax credit claimed, and tax to be paid. It is usually filed by the 20th of every month.
Common GST Offenses for Restaurants
The following details include the common GST offenses for restaurants:
Let us discuss the penalties for non-compliance with GST on restaurants:
The 55th GST Council meeting introduced significant amendments to the GST structure for restaurants, particularly those operating within hotels. These changes aim to simplify the tax system and align it more closely with the actual value of services provided. ?
Key Amendments:
Elimination of "Declared Tariff"
Previously, GST rates for hotel restaurants were based on the "declared tariff," which often led to confusion due to varying discounts and offers. The new system replaces this with the "actual value of supply," which means the GST rate is now determined by the actual room rates charged in the previous financial year.
Revised GST Rates Based on Room Tariffs
Option for Hotels to Opt for 18% GST
Hotels, regardless of their room tariffs, can choose to apply the 18% GST rate with ITC for their restaurant services by submitting a declaration before the start of the financial year or at the time of registration.
Impact on Restaurant Businesses
Government's Rationale Behind the Amendments
The primary goal of these changes is to simplify the GST framework and make it more transparent. By basing tax rates on actual transaction values rather than declared tariffs, the government aims to do the following: ?
These amendments are part of the government's broader efforts to streamline tax compliance and support the hospitality sector's growth.
GST on restaurants has made the tax rules simpler and more transparent. While it removed many old taxes and gave clarity, small restaurants can't claim tax credits, which may affect their profits. High-end hotels have some benefits, like claiming tax back. Understanding GST helps both restaurant owners and customers make better decisions. Since the rules can change, it is always a good idea to stay updated and seek help from experts if needed to avoid confusion and stay compliant. This article provided you with detailed information on GST for restaurants. To get assistance and guidance in filing a GST registration for restaurants, contact Online Legal India.