The Goods and Services Tax (GST) levied on food services in India can range from 5% to 12% to 18%, depending on several variables, including the establishment’s nature and location. Value Added Tax (VAT) and service tax systems were superseded by introducing GST rate on food service industry. But it’s crucial to remember that restaurant service charges are separate from GST.
It’s important to note that alcohol is still liable to the state tax known as VAT. Consequently, there will be different tax consequences for GST on restaurants that provide food and alcoholic drinks. Meals and non-alcoholic drinks are subject to GST, whereas supplied alcoholic beverages are subject to VAT.
Apart from culinary services, food goods purchased by customers are subject to Goods and Services Tax (GST), with current rates varying between 0% and 18%. We shall examine the main GST rate on restaurants that apply to food services and goods, too, in the following sections.
What is GST on Food and Restaurants?
Whether you’re a patron or a food business owner, it’s crucial to clearly understand the Goods and Services Tax (GST) as it pertains to GST on restaurants. The government applies GST on restaurants based on the type of establishment. Presently, restaurants are subject to GST rates of 5%, 12%, and 18%, and they are responsible for remitting these amounts to the government during tax filing.
The former system of Service Tax and Value Added Tax on food services has been replaced in the restaurant industry by adopting GST. As previously stated, restaurants are responsible for collecting the basic GST rates from their patrons and then forwarding them to the government.
It’s important to remember that small restaurants can choose to take part in the composition plan under GST, which enables them to pay a tax rate lower than the ordinary GST rate, provided their annual revenue does not exceed Rs. 1.5 crore. Additionally, subject to specific requirements, GST on restaurants may claim Input Tax Credit (ITC) on the GST paid for their inputs, including costs like raw materials, rent, and utilities.
GST Rates for Restaurants
Within the Goods and Services Tax (GST) framework, restaurants are categorised into two distinct rates: a 5% GST rate, which does not allow for the claiming of input tax credit (ITC) and an 18% GST rate that permits ITC claims. The determination of which rate applies depends on the restaurant’s location. Specifically, GST on restaurants within hotels where the room tariff exceeds a specified threshold are subject to a higher GST rate.
The following tables elucidate the GST rates relevant to food, catering, and GST for restaurant services.
| S no | Types of Restaurants | GST Rate |
| 1 | Standalone restaurant, including takeaway | 5% without ITC |
| 2 | Food supplied or catering services by Indian Railways/IRCTC | 5% without ITC |
| 3 | Restaurants within hotels
(Where room tariff is less than Rs 7,500) |
5% without ITC |
| 4 | Standalone outdoor catering services or food delivery service | 5% without ITC |
| 5 | Restaurants within hotels
(Where room tariff is more than or equal to Rs 7,500) |
18% with ITC |
| 6 | Normal/composite outdoor catering within hotels (Where room tariff is more than or equal to Rs 7,500) | 18% with ITC |
| 7 | Normal/composite outdoor catering within GST on hotels food
(Where room tariff is less than Rs 7,500) |
5% without ITC |
GST Rates on Food Items
Below is a comprehensive table to provide an in-depth understanding of the GST on food items in restaurants:
| Sr. no | Type of Food Items | GST Rate |
|
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GST on freeze/fresh vegetables | NIL |
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GST on non-container dried leguminous packed vegetables(shelled), whether skinned/split or not | NIL |
|
|
GST on fruits such as apples, oranges, grapes, etc. | NIL |
|
|
GST on non-vegetarians food items (whether fresh or chilled) | NIL |
|
|
GST on eggs in shells (whether fresh, cooked or preserved) | NIL |
|
|
GST on cream, unsweetened milk (whether pasteurised or unpasteurised) | NIL |
|
|
GST on packed vegetables in a container (whether steamed, boiled or uncooked) | NIL |
|
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GST on vegetables preserved using means unsuitable for immediate human consumption | NIL |
|
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GST on contained packed meat having a brand name or trademark | 5% |
|
|
GST on eggs not in the shells or egg yolks cooked or boiled by steaming | 5% |
|
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GST on container-dried leguminous packed vegetables having a brand name or trademark (whether skinned/split or not) | 5% |
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GST on vegetables such as thyme, curry leaves, and ginger (not fresh). | 12% |
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GST on vegetables, nuts, fruits and edible parts of plants that are preserved by a means | 12% |
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GST on flour-based food items, including less than 40% cocoa of total weight | 18% |
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GST on chocolate and chocolate-based products | 18% |
Impact of GST on Food and Restaurant Business
Here are the repercussions of the Goods and Services Tax (GST) on the food and restaurant industry:
- Under the GST regime, various taxes and surcharges, including Krishi Kalyan cess, VAT, and Service tax.
- Reduces the overall tax burden on restaurant bills.
- The service charges on bills remain unchanged even after the adoption of GST.
- Allows for GST to be claimed on expenses such as rent and raw materials.
- Eliminates the availability of Input Tax Credit (ITC) post-GST implementation.
- ITC benefits are exclusively accessible to GST on restaurants that levy an 18% GST rate according to GST regulations.
- Food items are not subject to GST rates exceeding 18%.
Conclusion
The introduction of GST on restaurants and food items has ushered in substantial transformations within the restaurant and food sector. It has streamlined the taxation process and enhanced transparency, yet simultaneously, it has raised business tax obligations. However, the ability to avail of Input Tax Credit has yielded a mixed effect on prices.
Despite the initial hurdles, implementing the GST system has instigated a crucial reformation of the system, which could ultimately prove advantageous for the industry in the long term. As the government continues to fine-tune the GST system, the restaurant GST rates might undergo adjustments in the upcoming years.
FAQs
1. Is GST mandatory on food restaurants?
In the case of a restaurant located in a special category state, if its annual total revenue surpasses rupees ten lakhs, the restaurant must undergo GST registration. Additionally, even if a restaurant’s yearly revenue falls below this threshold, it still has the option to register for GST voluntarily.
2. How is GST calculated on food products?
Within India, the GST on restaurants stands at 5% for non-air-conditioned establishments and 18% for air-conditioned ones. Regardless of the restaurant type, the GST rate remains consistent at 5% in the case of takeaway food orders.
3. Can restaurants charge GST on MRP?
The Maximum Retail Price (MRP) represents the inclusive price at which a product is sold to the final consumer, encompassing all taxes. Since restaurants are service providers, they are not obligated to impose GST on MRP. GST is relevant to the provision of services by restaurants and does not pertain to the sale of goods at MRP.