GST on Restaurants

The introduction of the Goods and Services Tax (GST) in India reshaped the taxation landscape, especially in sectors like food and beverage services. For restaurants, GST varies based on factors such as the type of establishment, amenities offered, and even the type of food served. 

Under the previous regime, multiple indirect taxes applied, such as VAT and service tax, creating complexity in compliance and adding to operational costs. GST now simplifies the tax structure, though it has introduced new financial and operational impacts for restaurant owners, ranging from small eateries to luxury dining establishments.

This article explores the specifics of GST for restaurants, highlighting the rates, compliance obligations, and the overall impact on the industry.

What is GST on Food and Restaurants?

GST on restaurants is determined by the nature and classification of the establishment. The rates typically vary based on:

• Type of restaurant: AC or non-AC.
• Additional services: Catering, takeaway, or dine-in.
• Hotel affiliation: Whether the restaurant operates within a hotel with specified room tariffs.

For instance, non-air-conditioned establishments are subject to a 5% GST, with no eligibility for claiming Input Tax Credit (ITC). In contrast, restaurants within air-conditioned hotels, especially those serving alcohol, incur an 18% GST rate and can claim ITC. Below is a breakdown of these rates:

• Restaurant food services (including takeaway): A GST rate of 5% applies to food services offered by restaurants, whether air-conditioned or non-air-conditioned, without the option of Input Tax Credit (ITC).
• Cafeteria and canteen services: Food and drink served in cafeterias, canteens, or messes that operate on a contractual basis in offices, industrial units, or educational institutions (not for special events) are charged at 5%, with no ITC available.
• Restaurant services in hotels (room tariff < ₹7,500): Restaurants within hotels that charge less than ₹7,500 for room tariffs apply a 5% GST rate, without ITC.
• Restaurant services in hotels (room tariff ≥ ₹7,500): For hotels with room tariffs of ₹7,500 or more, the GST rate increases to 18%.
• Meals on Indian railways: Food services provided by Indian Railways or IRCTC, either on trains or at platforms, are subject to a GST rate of 5%, with no ITC.
• Food services for events: Food services provided at rented premises for organising functions are taxed at 18%. This also applies to meals served during exhibitions, events, conferences, and other occasional gatherings.
• Other accommodation and food services: General accommodation, food, and beverage services are taxed at an 18% GST rate.

Note: The rates mentioned above are subject to periodic changes.

Key Rates of GST on Food and Beverage Items

GST rates are also item-specific within restaurants, influencing food pricing across categories. Essential food items like fresh produce generally fall under a 0% GST rate, while premium and branded products may have higher rates, reflecting their luxury status.

GST Rates on Specific Food Products

• Meat in branded containers: A GST rate of 5% applies to meat packed in containers that display a registered trademark or brand name.
• Boiled or cooked Eggs: Eggs that are not in their shells, including boiled or steamed egg yolks, are subject to a 5% GST.
• Dried leguminous vegetables: GST is set at 5% for dried leguminous vegetables (skinned or split) packed in containers bearing a registered trademark or brand name.
• Certain vegetables: Vegetables like ginger (excluding fresh ginger), turmeric (excluding fresh turmeric), thyme, curry leaves, and bay leaves are taxed at a 5% GST rate.
• Dried leguminous vegetable powder: A 5% GST applies to food products made from meal or powder of dried leguminous vegetables.
• Preserved fruits and vegetables: Fruits, vegetables, nuts, and edible parts of plants preserved with sugar are taxed at 12%.
• Vinegar-preserved products: Vegetables, fruits, nuts, and edible plant parts preserved or prepared with vinegar or acetic acid attract a 12% GST.
• Food products with flour or malt: Items prepared using flour, malt extract, or similar ingredients, including cocoa comprising less than 40% of the total weight, are charged at 18%.
• Chocolate and cocoa products: A GST rate of 18% applies to chocolate and other cocoa-based products.

Note: The rates mentioned above are subject to periodic changes.

Composition Scheme for Small Restaurants

To support smaller establishments, the GST regime offers a composition scheme for restaurants with an annual turnover of up to ₹1.5 crore. Under this scheme, restaurants pay a reduced, fixed GST rate, simplifying compliance and reducing tax burden. 

However, opting for the composition scheme means businesses cannot claim ITC, a trade-off many small businesses are willing to accept for simpler tax management. The composition rate for eligible small restaurants is set at 5% on the total turnover.

Impact of GST on the Restaurant Industry

1. Simplified tax structure

GST has streamlined tax compliance for restaurants by replacing VAT, service tax, and other indirect taxes, creating a uniform tax structure across states. This simplification has reduced administrative burdens and compliance costs for restaurant operators.

1. Pricing adjustments in customer bills

GST rates have led to noticeable shifts in restaurant pricing, particularly for upscale establishments subject to an 18% rate. Non-AC and smaller venues incur a lower 5% GST, resulting in more varied customer bills based on restaurant type and location.

1. Enhanced transparency and accountability

With GST, restaurants must regularly file taxes and manage detailed sales records. This structured approach promotes transparency in the industry, reduces the risk of tax evasion, and boosts credibility among customers and regulators.

1. Support for SMEs and growth of cloud kitchens

The composition scheme under GST is beneficial for smaller establishments, as it provides a lower compliance burden and supports the growth of SMEs. This has led to an increase in cloud kitchens and small eateries that can avoid the higher tax rates associated with dine-in services in premium venues.

GST Calculation Example: How it Affects Your Restaurant Bill

Let’s imagine a family goes to a nice, air-conditioned restaurant. They order food and drinks worth ₹2,500.

GST on Food: The government charges a tax on the food they eat. For air-conditioned restaurants, this tax is 18%. So, on ₹2,000 worth of food, they’ll pay ₹360 as GST.

GST on Drinks: If they order alcoholic drinks, the tax is also 18%. On ₹500 worth of drinks, they’ll pay ₹90 as GST.

Total Bill:

• Food: ₹2,000 + ₹360 (GST) = ₹2,360
• Drinks: ₹500 + ₹90 (GST) = ₹590
• Total Bill: ₹2,360 + ₹590 = ₹2,950

Conclusion

The GST system continues to evolve, with periodic reviews conducted by the government. Industry leaders have voiced concerns about the financial strain for high-end restaurants under the 18% rate. Potential adjustments may include a reduced tax rate for premium dining to maintain competitiveness in the market. The government is expected to consider both industry growth and affordability for consumers in future GST reviews.

Despite initial challenges, GST’s long-term benefits are expected to strengthen the industry, creating a fair, competitive environment for all types of restaurant businesses.

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