08 Oct 2017Posted By: Arvind

GST on Restaurant Services

GST on Restaurant Services

The Goods and Service Tax commonly known as GST subsumed 17 indirect taxes including cess as well and implements a single and uniform tax regime all across the nation. According to a recent restaurant industry research, the size of the food industry in India is likely to grow by 10 percent at least each year for the next five years.

In the pre-implementation phase of GST, restaurants were used to charge numerous taxes like State levy (VAT) and Central levies (Service Tax, KrishiKalyan Cess, and Swachh Bharat Cess). An approximate of 20.5% tax a person was paying on his restaurant outing. Apart from the taxes levied States and Central, the Restaurants used to charge 10% service charge separately. Such levy of service charge could be ignored as it’s not a tax levied by any state government or the central government. However, the restaurateurs were used to include the service charge in the bill and charge the service tax on the entire bill amount (charging service tax on service charge too).

Since charging service charge is not banned and is at the option of the customers to pay it voluntarily.

In the new GST regime, the customers will be paying only a single tax on the total restaurant food Billings (service charge only if they wish to).

Bifurcation of Restaurants in different categories:

Under the GST law, restaurants are divided into different categories–

  1. Air-conditioned
  2. Non-air conditioned.
  3. Part AC, those that serve alcohol or don’t serve alcohol, and Five-star restaurants.

GST rates on restaurants and how they will be applicable:

Non-air conditioned restaurants: The restaurants that don’t serve alcoholic beverages will charge 12% of GST on the Bill (CGST at 6% and SGST at 6%) while the restaurants that do serve alcoholic beverages will charge 18% of GST on the Bill (9% CGST and 9% SGST).

Partly air-conditioned and five-star: These restaurants will charge 18% of GST on the Bill (9% Central GST and 9% State GST) irrespective of the alcohol availability for customers. So, GST will slightly reduce the tax on restaurant outings from 20.5 percent to 18 percent. 

GST will bring reasons to cheer for both restaurant business owners and consumers. However, restaurant business owners have more reasons to rejoice under the GST regime. Under the previous indirect tax regime, the restaurant business owners were unable to set off the input VAT paid (input tax credit of VAT) paid on goods purchased against the output service tax liability. However, under new GST regime both these taxes ( VAT and Service Tax) are subsumed into GST and thus the input tax credit will be available for set off against the output liability, regardless of goods and services.

Composition Schemes under GST

Businesses which deals in goods only can only opt for composition scheme under the GST regime. Provider of services is kept outside of this composition scheme. However, restaurant business owners may opt for the scheme. This composition scheme only holds good if your annual turnover is below Rupees 75 Lakhs.

The composition scheme allows restaurant owners with an annual turnover threshold up to Rs75 lakh to pay a GST at a concessional fixed rate and minimize the procedural requirements and compliances that have to be followed by every business under GST.

It has been decided that restaurants businesses with an annual turnover of fewer than Rs75 lakhs(50 lakhs in case of special category states) can pay a tax at the rate of 5% (2.5% central GST and 2.5% state GST),

Strict Penal Provisions

Under Goods and Service Tax regime, if the proper officer found that a taxable person not being eligible for the composition scheme under the GST have erroneously opted for the composition scheme, then he shall be liable for penalty along with the payment of differential taxes and all the provisions of demand and recovery will mutatis mutandis apply to him.

This means that before applying for the composition scheme under the GST regime a taxable person must clear all his doubts about his eligibility for the composition scheme to avoid such penal provisions.

Merits of the Scheme

Following are some of the reasons why a restaurant business owner should choose to get registered under the composition scheme:

  • Limited Tax Liability: while comparing with normal taxpayers, a taxpayer under composition scheme will be liable to pay tax at a lesser rate rather than paying standard rate (not more than 2.5% instead of 18%)
  • High Liquidity: Distinct from regular taxpayers, a restaurant business owner under Composite Scheme will be liable to pay taxes at a lower rate as a result lesser chunk of working capital.
  • Limited Procedural Requirements and Compliance: Lesser procedural requirements w.r.t. maintenance of books of records, furnishing of returns, issuance of invoices etc. that means more focus on business.


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