The implementation of GST on restaurant services in India has been complicated. Restaurant owners in India have faced numerous challenges with the coming of the GST. Some of these challenges include confusion with regards to GST rate on restaurant food, non availability of input tax credit etc.
Thus, GST Council has been rolling out changes in GST on restaurant services. Such changes are brought about to bring more clarity and respite to restaurant owners across India. GST Council’s meetings announces all such changes through notifications and circulars.
So, here’s a detailed article about the GST rates applicable on your restaurant services.
Let’s first have a look at the taxes charged on the restaurant bill under previous indirect tax regime. This would help in understanding GST rates applicable on your restaurant services.
Taxes on Restaurant Bill Before and After GST
a restaurant levied a host of indirect taxes on the value of food ordered by the end user. These taxes included Service Tax, Value Added Tax and Surcharge. So let’s understand the meaning of each of these taxes and see how the restaurant bill under previous indirect tax regime looked like:
It was an indirect tax charged by the government on the service providers for some particular service transactions. The service provider was liable to pay such a tax to the government, but he/she collected the same from the end customer. For instance, tax charged on the services rendered by restaurants.
Value Added Tax (VAT)
VAT was an indirect tax that was charged on the sale of goods and services. Since the end consumers paid the tax, it was also called consumption tax. The producers of goods and services collected VAT on their sale, deducted the VAT paid on input purchases and thus paid the remaining amount as VAT to the government. Thus, VAT was equal to output less input tax. For instance, tax charged on the food value of the bill.
Usually, people tend to get confused between service tax and service charge. Service charge is not a tax. It is is rather an income to the restaurant owner that is charged in addition to the service tax by the restaurant owners. Whereas service tax is a tax to be collected by the service provider and paid to the government.
However, GST implementation has lead to subsuming of all these indirect taxes. A single rate, applicable to a particular type of restaurant service is now charged under GST regime.
Restaurant Bill Before and After GST Implementation
|Particulars||Before GST||After GST|
|Service Charge @10%||500||500|
|Service Tax @ 5.6%||308||–|
|Krishi Kalyan Cess 0.2%||11||–|
|Swachh Bharat Cess 0.2%||11||–|
Thus, the taxpayer under GST would be able to save close to Rs. 228 given the food bill of Rs. 5,500. Thus, consumers will be able to save more under GST with the absorption of multiple taxes that existed under previous indirect tax structure.
GST Rate Changes on Restaurant Services
There have been a number of changes that have been introduced by the GST Council in respect of GST on restaurant services. When GST was first introduced in July 2017, GST rates applicable to restaurant services was divided into various tax categories of 12%, 18% and 28%. Factors like AC, Non – AC restaurants and liquor licence decided the GST rate applicable.
GST Rates on Restaurant Services as Introduced Originally (As per May, 2017)
|Type of Service||GST Rate|
|Restaurants without AC, central heating and liquor license||12% with full ITC|
|Restaurants with liquor license||18% with full ITC|
|Restaurants with AC, central heating||18% with full ITC|
|Outdoor catering||18% with full ITC|
|Bundled service by the way of supply of food, drinks in a premises together with renting of the premise||18% with full ITC|
|AC restaurants in 5 – star or above rated hotel||28% with full ITC|
Latest Changes in GST Rates on Restaurant Services (with Effect from October 1, 2019
|Type of Service||GST Rate|
|Standalone Restaurants (whether air conditioned or not)||5% GST without ITC|
|Food parcels or takeaways from standalone restaurants||5% GST without ITC|
|Restaurants in hotel premises with room tariff of less than Rs. 7,500 per unit per day||5% GST without ITC|
|Restaurants in hotel premises with room tariff of Rs. 7,500 and above (even if it has a single room with such a room tariff) also per unit per day||18% GST with full ITC|
|Standalone outdoor catering services||5% GST without ITC|
|Outdoor catering within hotels (where tariff is less than Rs. 7,500)||5% GST without ITC|
|Outdoor catering services within hotels (where tariff is equal to or more than Rs. 7,500)||18% GST with full ITC|
Composition Scheme for Restaurant Business
The GST law allows the restaurant business owners to opt for Composition Scheme. Under this scheme, the taxpayers are required to pay GST quarterly at a fixed percentage (5% in case of restaurants) of their annual turnover instead of paying GST at normal rates. Given this, the restaurant owners,therefore, must follow the rules laid down by the GST law for taxpayers under Composition Scheme.
The conditions to be fulfilled in order to opt for Composition Scheme are as follows:
The restaurant owners :
- must have a turnover of less than Rs. 50 lakhs in the previous financial year
- cannot supply exempted items under GST
- cannot engage in inter state supplies
- can’t avail input tax credit
- cannot collect taxes from the customers