The Goods and Services Tax (GST) regime has transformed the tax landscape in India, impacting businesses across various sectors, including the restaurant industry. Understanding the nuances of GST is crucial for restaurants to ensure compliance and optimize their operations. In this comprehensive guide, we explore the intricacies of GST for restaurants, covering everything from rates to compliance obligations.
Understanding a pre-GST Restaurant Bill
As end consumers, we often don’t pay attention to the details of our restaurant bills. If you look at a pre-GST bill from a fine-dining experience, you’ll notice several charges added on top of the food cost, including Service Tax, Service Charge, and VAT.
It’s essential to understand the different components of your bill:
- VAT: This tax is charged on the food portion of your bill.
- Service tax: This tax is charged on the services provided by the restaurant. The government has separated the service and food components to avoid confusion and taxed them accordingly.
- Service charge: This is a charge applied by the restaurant and is not a tax. It’s important not to confuse it with service tax as service charge is a source of income for the restaurant, while service tax is collected from you and submitted to the government.
The GST rates are different from the previous tax policy, so it’s crucial to understand them.
GST Rules for Restaurants
Under GST, Restaurants are either charged 5% GST without the option to claim ITC, or 18% GST with ITC claims, depending on their location. Higher GST rates apply to restaurants in hotels where the room tariff exceeds the specified amount. Tables below explain GST rates for food, catering, and restaurant services.
GST Rates for Restaurant Services
Restaurants offer a spectrum of services, each attracting a different GST rate. Here’s an overview of the applicable GST rates for various restaurant services:
| Sr No | Type of Restaurants | GST Rate |
| 1 | Food supplied or catering services by Indian Railways/IRCTC | 5% without ITC |
| 2 | Standalone restaurants, including takeaway | 5% without ITC |
| 3 | Standalone outdoor catering services or food delivery service | 5% without ITC |
| 4 | Restaurants within hotels (Where room tariff is less than Rs 7,500) | 5% without ITC |
| 5 | Normal/composite outdoor catering within hotels (Where room tariff is less than Rs 7,500) | 5% without ITC |
| 6 | Restaurants within hotels* (Where room tariff is more than or equal to Rs 7,500) | 18% with ITC |
| 7 | Normal/composite outdoor catering within hotels* (Where room tariff is more than or equal to Rs 7,500) | 18% with ITC |
*This covers individuals supplying catering or other services in hotels (having room tariff of Rs 7,500 or more) and not any hotel accommodation services.
The rationale behind the differential rates lies in the perceived luxury quotient and convenience associated with each service. Dining-in, take-away, 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 inclusions.
Input Tax Credit (ITC) for Restaurants
Restaurants can leverage Input Tax Credit (ITC) to offset the GST paid on inputs such as raw materials, ingredients, and services. By maintaining proper documentation and compliance, restaurants can maximize their ITC benefits, thereby reducing their tax liability.
Composition Scheme for Restaurants
Small restaurants with an annual turnover below the prescribed threshold can opt for the Composition Scheme. This scheme offers simplified compliance procedures, allowing restaurants to pay GST at a predetermined rate on their turnover without the hassle of detailed record-keeping. However, restaurants under this scheme cannot claim Input Tax Credit and may have restricted growth prospects due to turnover limitations.
GST Registration for Restaurants
GST registration is mandatory for restaurants with an annual turnover exceeding ₹20 lakhs. Special category states may have a lower threshold of ₹10 lakhs. The registration process involves submitting requisite documents and obtaining a unique GST Identification Number (GSTIN) for all GST-related transactions.
GST Invoicing Requirements
Issuing GST-compliant invoices is essential for restaurants to maintain transparency and facilitate compliance. Invoices must include crucial details such as the GSTIN of the restaurant, customer information, description of services, and applicable GST rates. Adhering to the prescribed format ensures seamless reconciliation of GST credits and mitigates the risk of penalties.
Compliance and Filing
Compliance with GST regulations entails timely filing of GST returns and meticulous record-keeping. Restaurants are required to file monthly returns such as GSTR-1 (outward supplies) and GSTR-3B (summary return) within the specified due dates. Non-compliance can result in penalties and legal consequences, underscoring the importance of adherence to GST norms.
Impact of GST on Menu Prices
The implementation of GST has influenced menu prices in restaurants. While the tax structure aims to streamline processes, restaurants must adjust their pricing strategies to accommodate the GST burden effectively. Factors such as input costs, competition, and consumer preferences play a crucial role in pricing decisions post-GST implementation.
Impact on Restaurant Business Owners
Under the GST regime, the Service Tax and VAT amounts will be combined into one single rate. However, you may still notice service charges on your food bill. To provide you with a better understanding, we have created a comparison of how your food bill will look before and after GST. Please note that in our example, we have assumed that VAT is applicable at 100% of the value without any abatement.
| Particulars | Billing under VAT regime | Billing under GST regime |
| Total Bill | 5000 | 5000 |
| Output Tax | ||
| –VAT @14.5% | 725 | |
| –Service tax@6% | 300 | |
| GST @5% | 250 | |
| Total output tax liability | 1025 | 250 |
| Input credit | ||
| —VAT ITC (no ITC on ST) | 75 | |
| —GST ITC | – | |
| Final Output tax liability | ||
| –VAT | 650 | |
| –Service Tax | 300 | |
| –GST | 250 |
Under the current tax regime, the total amount payable to tax authorities is Rs. 950, while under GST, it is reduced to Rs. 250. This makes GST beneficial for both consumers and restaurant owners. So, let’s explore new food joints in our neighbourhood and indulge our taste buds.
Meet Ravi, an aspiring restaurateur keen on understanding GST for his new venture. He dives into a detailed guide that explains everything about GST for restaurants, from registration to compliance. When he understands about paying GST challans, he feels stuck, unsure how to handle the payments efficiently. Then Ravi found BharatNXT, a platform that simplifies business and GST payments for restaurant owners. With this, Ravi can manage all his restaurant bills and GST payments from a single platform. This integrated solution gives Ravi the confidence to handle his finances seamlessly, allowing him to focus on making his restaurant a success.
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