A Complete Guide to GST Rates on Food in Restaurants

Introduction

Imagine you step into your favorite restaurant, and after enjoying a wonderful meal, the final bill catches you by surprise with an additional charge. You might wonder why the food cost is higher than what was initially on the menu. This scenario is a reality for many diners, as GST on food in restaurants plays a significant role in increasing the total amount on restaurant bills.

Launched in 2017, the Goods and Services Tax (GST) replaced several indirect taxes like VAT and service tax, aiming for a more standardized tax system across India. However, the implementation of GST on restaurant food items, whether you’re dining in or opting for takeout, is complex and differs based on multiple factors. These include the type of restaurant (AC or non-AC), whether the restaurant serves alcohol, and the establishment’s annual turnover.

In this guide, we will demystify GST on restaurant services, provide clarity on GST rates on food items, explain the impact of GST on restaurant bills, and look at Input Tax Credit (ITC) and GST compliance. We will also explore common mistakes to avoid and answer frequently asked questions to help both restaurant owners and customers.

Understanding GST Rates on Food and Restaurant Services

GST is a tax levied on the sale of goods and services, and restaurant services fall under this tax regime. The GST on food items in restaurants is applicable on both food and beverages and also includes service charges. The amount of GST levied depends on several factors:

Factors Affecting GST on Food in Restaurants:

1. Type of Restaurant:
   The GST rates vary for AC and non-AC restaurants, and whether the restaurant serves alcohol or not.
   
2. Hotel Classification:
   Restaurants in hotels with a room tariff below ₹7,500 have a 5% GST rate, while those in hotels with a room tariff above ₹7,500 falls under an 18% GST slab with ITC benefits.
   
3. Takeaway and Home Delivery Services:
   These services attract the same 5% GST rate as dine-in services but without ITC.
   
4. Annual Turnover of the Restaurant:
   The annual turnover of the restaurant also influences the applicable tax rate. Larger establishments might fall under a different GST category.
   

GST Rates for Different Categories of Restaurants

Restaurants in India are categorized into different tax slabs depending on the services they provide. The tax rate impacts the pricing and operational costs of restaurants. Here’s a breakdown of the GST rates on food items in different types of restaurants:

Type of Restaurant	GST Rate
Standalone restaurants (non-AC, non-alcohol serving)	5% (without ITC)
AC Restaurants or those serving alcohol	5% (without ITC)
Restaurants in hotels where room tariff is below ₹7,500	5% (without ITC)
Restaurants in hotels where room tariff is above ₹7,500	18% (with ITC)
Takeaway and home delivery services	5% (without ITC)
Outdoor catering services	18% (with ITC)

For example, a meal at a standalone restaurant costing ₹1,000 will have a 5% GST added, making the final bill ₹1,050. However, if you dine at a restaurant within a luxury hotel, the GST could be 18%, bringing the bill to ₹1,180.

Impact of GST on Restaurant Bills and Pricing

The impact of GST on restaurant bills can be substantial, particularly for premium restaurants or hotels. Let’s look at how GST affects pricing across different categories:

Example Breakdown:

• Non-AC Restaurant:
  For a meal priced at ₹500, a 5% GST is applied, making the final bill ₹525.
  
• AC Restaurant:
  Even for an AC restaurant, the GST remains 5%, resulting in a final bill of ₹525 for the same ₹500 meal.
  
• Luxury Hotel Restaurant:
  If you dine at a luxury hotel where the meal costs ₹2,000, an 18% GST will be levied, leading to a final bill of ₹2,360.
  

For customers, the GST leads to a noticeable increase in their final bill, particularly in high-end establishments. However, this also impacts restaurant pricing strategies, as many restaurants need to adjust menu prices to absorb the tax burden.

Input Tax Credit (ITC) for Restaurants Under GST

The Input Tax Credit (ITC) allows businesses to reduce the tax they pay by offsetting input taxes. While ITC provides relief to businesses under certain circumstances, most restaurants are under the 5% GST category, where ITC is not allowed.

What Does This Mean for Restaurants?

• No ITC:
  Restaurants under the 5% GST slab cannot claim ITC for taxes paid on raw ingredients, kitchen equipment, and other essential materials.
  
• Higher Costs for Restaurants:
  The lack of ITC increases operational costs for restaurants, which may need to raise their prices to offset these costs.
  
• ITC Benefit for Larger Establishments:
  Hotels and outdoor catering services that fall under the 18% GST slab can avail of ITC, making it easier for them to manage costs.

GST Compliance for Restaurant Owners

For restaurant owners, maintaining compliance with GST regulations is essential to avoid penalties and legal issues. Here’s what restaurant owners need to know about GST registration and filing:

GST Registration for Restaurants:

• Threshold for Registration:
  If a restaurant’s annual turnover exceeds ₹20 lakh (₹10 lakh for special category states), GST registration is mandatory.
  
• Filing GST Returns:
  Restaurant owners must file monthly and annual GST returns to report their sales and taxes paid.
  
• GSTIN Display:
  GSTIN (Goods and Services Tax Identification Number) must be displayed on all invoices.

Common Mistakes to Avoid in GST Compliance:

1. Incorrect Classification of Restaurant Type:
   Misclassifying your restaurant type could lead to applying the wrong GST rates on food.
   
2. Not Charging GST on Service Charges:
   Many restaurants fail to apply GST on service charges, leading to non-compliance.
   
3. Failure to Maintain Proper Records:
   Inaccurate record-keeping can lead to errors during GST filing and audits.

GST Exemptions for Certain Food Services

Certain food-related services are exempt from GST, reducing the tax burden on customers and businesses. These include:

Examples of GST Exemptions:

1. Prasad served by Temples:
   Food offered as part of religious services is exempt from GST.
   
2. Mid-day Meals in Schools:
   These meals are exempt from GST to ensure children from lower-income groups can access affordable food.
   
3. Non-profit Organizations Serving Food:
   Nonprofits offering food for charitable purposes are exempt from GST.
   
4. Canteen Services in Educational Institutions:
   Food served in canteens within educational institutions is exempt from GST.

Common Mistakes to Avoid in GST Calculation for Restaurants

While navigating GST on restaurant services, both customers and restaurant owners must be cautious of common errors. Some mistakes to avoid include:

1. Misunderstanding GST Inclusion in Bills:
   Customers sometimes confuse service charges with GST, leading to confusion.
   
2. Incorrect Application of GST Rates:
   Misapplying the GST rates on food due to incorrect classification of the restaurant type or its services is a frequent mistake.
   
3. Failing to Claim ITC:
   Some businesses fail to claim ITC on eligible expenses, which increases their operational costs.

Conclusion

The implementation of GST rates on food in restaurants has undoubtedly made taxation more transparent but also introduced complexities. For customers, understanding how GST affects restaurant bills ensures better financial planning. For restaurant owners, staying compliant with GST regulations is crucial for avoiding penalties and maintaining profitability.

RegisterKaro is here to assist restaurant owners with GST registration, filing, and compliance management. Whether you’re a new restaurant or an established chain, we can help you streamline your GST-related processes, ensuring hassle-free tax management and helping you focus on growth.

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

Frequently Asked Questions (FAQs)

1. What are the GST rates on food in non-AC restaurants?
   A: The GST rate for non-AC standalone restaurants is 5% without ITC.
   
2. Do restaurants have to pay 18% GST?
   A: Restaurants in hotels where room tariffs exceed ₹7,500 and outdoor catering services attract 18% GST with ITC.
   
3. Can restaurants claim Input Tax Credit (ITC)?
   A: Only restaurants charging 18% GST can claim ITC, while those under the 5% GST slab cannot.
   
4. How does GST affect restaurant bills?
   A: GST adds 5% or 18% to the total bill amount, depending on the restaurant type.
   
5. What services are exempt from GST in restaurants?
   A: Mid-day meals, food served by non-profits, and religious institutions are exempt from GST.
   
6. Is GST applicable on takeaway food?
   A: Yes, takeaway food services are charged 5% GST without ITC.
   
7. Do small restaurants need to register for GST?
    A: If a restaurant’s turnover exceeds ₹20 lakh, GST registration is mandatory.
   
8. What are the GST rates on food served in luxury hotels?
   A: Luxury hotels with a room tariff above ₹7,500 charge 18% GST with ITC.
   
9. Do all restaurants charge GST on food?
   A: Most restaurants charge GST, but certain food services, like mid-day meals, are exempt.
   
10. What are common GST mistakes in restaurants?
    A: Misclassifying the restaurant type, incorrect application of GST rates, and failure to maintain records are common mistakes.