GST on Food and Restaurants: Rates and Impact

Introduction

The Goods and Services Tax (GST) in India brought a new era of indirect taxation for various sectors, including the food and restaurant industry. Previously burdened with multiple taxes like VAT, excise, and service tax, the food industry now faces a unified taxation system. This change brings both benefits and challenges to consumers, restaurant owners, and food delivery services. GST impacts how businesses price their offerings, manage compliance, and what consumers pay for their meals.

This article aims to explore everything you need to know about GST on food and restaurant services, from the tax rates applied to different types of eateries to the Input Tax Credit (ITC) mechanism and the overall impact on businesses and customers.

What is GST on Food and Restaurant Services?

GST on food and restaurant services refers to the taxation levied on the provision of food and beverages by restaurants, catering services, and food delivery platforms. The tax is designed to replace previous indirect taxes like VAT, service tax, and excise duties, streamlining the process for both businesses and the government.

Examples:

• Standalone restaurants with no air conditioning and no alcohol service are taxed at 5%.
• Restaurants in hotels with room tariffs above ₹7,500 are taxed at 18%, and they can avail of ITC.

GST Rates for Different Types of Food and Restaurant Services

Breakdown of GST Rates by Restaurant Type and Service Offered:

• Standalone Restaurants (Non-AC, No Alcohol): 5% GST (No ITC)
• Air-Conditioned Restaurants or Serving Alcohol: 18% GST (No ITC)
• Restaurants in Hotels (Room Tariff Below ₹7,500): 5% GST (No ITC)
• Restaurants in Hotels (Room Tariff Above ₹7,500): 18% GST (With ITC)
• Outdoor Catering Services: 18% GST (With ITC)
• Food Delivery Services (Zomato, Swiggy, etc.): 5% GST (No ITC)
• Bakery and Sweet Shops (With Dining Area): 5% or 18%, depending on setup
• Canteen and Mess Services: 5% GST (No ITC)

Example:

• A non-AC restaurant serving only food without alcohol will charge a 5% GST, and consumers will notice the tax reflected in their bill.
• In a hotel restaurant with a tariff above ₹7,500, consumers will face 18% GST, but the hotel can claim ITC on inputs like raw materials.

Breakdown of GST on Food Bills (Dining, Takeaway, Delivery)

The following describes how GST on food is applied to various services:

• Dine-in Restaurants: GST is charged based on the restaurant type—either 5% or 18%, and it appears on the bill.
• Takeaway and Parcel Services: The GST charged mirrors the rates of dine-in services.
• Online Food Delivery Services: Aggregators like Swiggy or Zomato charge 5% GST on behalf of restaurants.
• Catering Services: GST for catering is 18%, and businesses can claim ITC benefits.

Example:

• A customer dining at an AC restaurant will see an 18% GST on food bill, while a takeaway from the same restaurant will have the same tax applied.

GST Applicability for Restaurants (Regular vs. Composite Scheme)

Restaurants in India can opt for either the Regular Scheme or the Composition Scheme, based on their turnover and business nature.

• Regular Scheme:
  
  • Applicable for restaurants with higher turnover.
  • Allows businesses to charge 5% or 18% GST, depending on the classification.
  • Can file regular GST returns and claim ITC (for 18% rate).
• Composition Scheme:
  
  • For restaurants with turnover up to ₹1.5 crore.
  • Restaurants charge GST at 5% with a lower compliance burden.
  • Cannot claim ITC.

Example:

• A small café with annual turnover below ₹1.5 crore may choose the Composition Scheme for simplicity, but a luxury hotel restaurant charging 18% GST would register under the Regular Scheme to claim ITC.

Impact of GST on Consumers and Restaurant Businesses

The Effects on Consumers and Restaurant Owners are:

• Impact on Consumers:
  • Consumers now face higher bills, especially in AC restaurants, due to the 18% GST.
  • GST has simplified tax transparency, but costlier for consumers in some cases.
• Impact on Restaurants:
  • Restaurants need to maintain accurate GST records and file regular returns.
  • Many businesses increase menu prices to offset GST-related costs.

Example:

• A consumer dining in an AC restaurant may see a higher final bill due to 18% GST, while in a non-AC restaurant, the GST remains 5%.

Input Tax Credit (ITC) for Restaurants

ITC allows businesses to offset the taxes paid on inputs like raw materials, rent, and other business expenses, reducing overall tax liability. Restaurants that charge 18% GST can claim ITC for these inputs. However, restaurants under the 5% GST slab cannot claim this benefit.

Example:

• A restaurant that buys vegetables and other raw ingredients may pay GST on purchases. Restaurants charging 18% GST can claim back this tax, but those charging only 5% cannot.

Common Misconceptions About GST on Food and restaurant Services

Clearing Up Some Myths About GST:

• Service Charge is the Same as GST:
  Service charges are imposed voluntarily by the restaurant and are not part of GST.
  
• All Restaurants Charge the Same GST:
  Different restaurants may have different GST rates based on classification (e.g., AC or Non-AC).
  
• GST on Home-Delivered Food is Lower:
  Online food aggregators collect 5% GST, ensuring consistent taxation across services.

Conclusion

The introduction of GST on food and restaurant industry has brought about significant changes, both for businesses and consumers. While businesses now face simplified tax structures, they also deal with the challenge of managing compliance and adjusting pricing. For consumers, GST brings clarity and transparency, but it also means paying higher bills in some cases. Understanding the different GST slabs and how they affect both dining and takeaway experiences can help consumers and business owners make informed decisions.

If you’re a restaurant owner or operator, Registerkaro can help you navigate GST registration and ensure that your business complies with all regulations. Contact us today for professional support and guidance.

At RegisterKaro, we specialize in helping restaurants and food service businesses with GST registration and compliance. Contact us today to make your GST registration smooth and hassle-free.

Contact Us Today: Email: support@registerkaro.in
Call: +918447746183

Frequently Asked Questions (FAQs)

1. Can a restaurant claim Input Tax Credit under GST?
Yes, restaurants charging 18% GST can claim ITC. However, restaurants under the 5% slab cannot.

2. Is GST applicable on raw food items?
No, raw food items like vegetables and grains do not attract GST.

3. Do online food delivery platforms charge GST separately?
No, platforms like Zomato and Swiggy collect 5% GST on behalf of the restaurant.

4. Can a restaurant switch from the Composition Scheme to the Regular Scheme?
Yes, a restaurant can switch schemes if its turnover exceeds ₹1.5 crore.

5. Is GST charged on packaged food products?
Yes, packaged food items like biscuits and chips attract GST.