For restaurant owners in India, the shift to the GST tax regime has been a bumpy road. Changes to the law, as well as complicated rules regarding the type of restaurant you own, may leave you feeling confused. By staying updated on the latest changes, you can make sure you’re charging the correct GST and changing menu prices accordingly.
Original GST Rules for Restaurants
When GST first launched in July 2017, your restaurant could fall into three different rate slabs. If you did not have air conditioning, you were charged 12%. If you had AC or a liquor license, you had to pay 18% GST. For restaurants in five-star hotels, the GST rate was set at 28%. At that time, all restaurants in India could take advantage of the input tax credit. That meant that when you paid GST while buying supplies for your restaurant, you could subtract that amount from your tax bill. That helped reduce costs for many restaurants.
Updated GST Rules for Restaurants
In November of 2017, the GST council met and decided to make changes to the original restaurant tax rates. During this meeting, the council set the GST rate at just 5% for most restaurants, regardless of AC and liquor licenses. As of May 2018, the same applies to takeaway and food delivery businesses.
If you run a restaurant in a hotel, however, the rules might be different. For restaurants in hotels with standard room rates of RS7500 per night or higher, the GST is set at 18%. The 18% rate also applies to outdoor catering.
Input Tax Credit for Restaurants
The November 2017 GST changes also included a big shift in the ITC. If your restaurant falls into the 5% GST slab, you can no longer claim the ITC on your monthly return. If you fall into the 18% slab, you can still claim ITC.
The GST council decided to take away the ITC because they felt that restaurants were not passing on the benefit to their diners — which would normally be done by lowering prices. Since the goal of the GST regime is to reduce consumer prices, this was a problem for the council. As a result, most restaurants in India enjoy a lower tax rate but no way to reduce their monthly tax liability.
What About Alcohol?
If you serve alcohol in your restaurant, your taxes are slightly more complicated. The GST regime does not include liquor. That means that when a diner orders a drink, you need to tax that drink at different rates. Depending on where your restaurant is in India, that could include VAT and any other applicable state taxes. These taxes must only be applied to the alcohol part of the bill, while the GST must only be applied to the food section of the bill. It’s important to set tax rates appropriately in your point of sale software to stay compliant.
As India grows accustomed to the GST regime, further changes to the tax rules are possible. By staying current on the GST council’s activity, you can adjust quickly and make sure that your restaurant is compliant with the latest laws.