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Find out how GST on restaurants works, what tax rates apply to food items and how restaurant services are billed under the new tax regime.
In July 2017, India introduced a revolutionary taxation system, the Goods and Services Tax (GST). This step changed the way we are taxed when we dine out.
Earlier, both the central and state governments used to charge different taxes on food and restaurant services.
GST replaced many of those overlapping taxes and brought in a few exemptions. So, whether you own a restaurant or just love eating out, there is a lot you might want to know.
In this blog, we will talk about this topic, exploring GST for restaurants, its implications for restaurant services and food items, and the associated tax benefits in a simplified manner.
The Indian government levies a tax system on the food and restaurant industry, depending on the establishment type.
At present, the applicable rates of GST on restaurants are 5%, 12% and 18%, which the restaurant owners are liable to pay to the government after getting registered on the official portal.
However, businesses can also avail Input Tax Credit (ITC) on the tax paid on particulars, including rent, raw materials, and utilities. Note that it is completely subject to specific conditions.
However, there is relief for small restaurant owners or start-ups whose annual turnover does not cross the threshold of ₹1.5 crore.
The Indian government has introduced a composition scheme that enables them to pay a fixed tax rate, much lower than the specified GST rate for all.
Find out what is the GST on used cars and how to calculate it.
If you look at the pre-GST restaurant bill, you will find 3 major components: service tax, service charge, and VAT.
Let us explain every component in detail:
The Indian government introduced GST to replace multiple indirect taxes with a unified tax system. This move had a significant impact on the restaurant and food industry.
Here is a synopsis that showcases how GST affects this industry:
As mentioned earlier, food businesses and restaurant owners now have to pay only GST instead of multiple taxes in India.
This simplifies the process, reduces the cost of compliance and makes tax regulations easier to follow.
After implementing GST, businesses witnessed greater transparency in the taxation system. Maintaining records and filing regular tax returns have become more structured and transparent, increasing compliance and reducing tax evasion.
Not everything is positive when talking about the impact of GST on restaurants and food items. According to experts, it has had a mixed impact on the restaurant and food industry.
While the rates for some items have increased in this new format, the privilege to avail ITC has helped reduce prices for other food items or services. The overall impact has been moderate.
Calculate GST on various items with our free GST calculator.
Take a look at the following table to explore the GST rates applicable to restaurant services:
Take a look at the following table to explore the GST rates applicable to food items:
The GST on restaurants that fall under the composition scheme are allowed to pay a concessional 5% GST to the government. The conditions to fall under this category are:
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The GST on restaurants and food items is not the same and varies based on different factors. These include the type of service, the kind of restaurant, ITC eligibility, and whether it’s located inside a hotel.
However, this uniform tax structure simplifies billing and other aspects of business compared to the pre-GST era. As far as return filing for restaurants is concerned, businesses need to file GSTR-1, GSTR-3B and GSTR-9 returns regularly.
The maximum GST rate applied to food items is 28%, which is on particular food items, including carbonated and caffeinated beverages.
Yes, you are required to pay both CGST and SGST on restaurant food for within-state transactions. The total amount is divided equally between CGST and SGST. For instance, if the rate is 18%, CGST will be 9% and SGST will be 9%.
There is a list of food items that are exempt from GST, such as fresh fruits and vegetables. You can check the table above and explore the food items with no GST.
Yes, GST applies to takeaway food items, with rates ranging between 5% and 18%. The rate depends on the restaurant’s location.
Yes, restaurants are allowed to claim Input Tax Credit for items such as raw materials, furniture, and kitchen equipment if your business is registered under the regular GST scheme. Restaurants that fall under composite schemes cannot avail of ITC.