The GST regime of indirect taxation has subsumed most of the indirect taxes levied on the sale and purchase of goods and services in India. The price of numerous commodities and services have been affected due to the multiple indirect taxes imposed. When it comes to the restaurant business, the rate of GST on restaurants has been a debatable issue.
Under the pre-GST regime, the bill of the restaurant included VAT, Services Tax and Service Charge. The particulars of a restaurant bill before GST regime were as follows:
Price of food Item: The price stated in the Restaurant’s Menu card is the price on which the different taxes were calculated.
VAT: The Indirect tax levied on food items ordered.
Service Tax: The indirect tax levied on services provided by restaurants.
Service Charge: This is not an indirect tax, but a charge levied by restaurants over and above Service Tax. The amount of Service Charge charged by the restaurant was not included in tax collected by the government.
Rate of GST on Restaurant Bills
| Type of Restaurants | Tax Rate |
| Restaurants (Stand Alone) | 5% without Input Tax Credit |
| Restaurant being a part of a Hotel (where the declared tariff of the accommodation is not exceeding Rupees 7500) | 5% without Input Tax Credit |
| Restaurant being a part of a Hotel (where the declared tariff of the accommodation exceeds Rupees 7500) | 18% with Input Tax Credit |
| Regular Catering at say Company premises | 5% without Input Tax Credit |
| Outdoor catering service | 18% with Input Tax Credit |
The restaurant business is eligible to opt composition scheme under the GST law. However, the restaurant is required to follow the prescribed composition GST rules.The rate at which restaurants are required to pay GST is fixed at a concessional rate of 5% which is to be levied on the turnover subject to the following restrictions:
The Turnover of the restaurant should not exceed Rs 1.5 Crores (Rupees 150 lakhs). However, this limit Rupees 1 Crore for special category States.The restaurant should not be engaged in any services other than restaurant subject to certain exemptions.
The restaurant can’t be engaged in the interstate supply of goodsThe restaurant can’t supply any items exempt under GST.The restaurant can’t supply goods through an e-commerce operatorThe restaurant can’t avail any ITC (Input Tax Credit)The restaurant can’t collect taxes from the customerIn addition to this the Restaurant opting for Composition Scheme is required to:mention the words “composition taxable person, not eligible to collect tax” on the bill of supply.mention the words ‘composition taxable person’ on every notice or signboard at their place of business or additional place of business.
Regular Tax Payer V/s Composition dealer
| Particulars | Regular Scheme | Composite Scheme |
| Registration | Threshold limit – Rupees. 20 Lakhs | Threshold limit – Rupees. 150 lakhs (1.5 Cr) |
| Business Territory | No restriction on supply of goods or services | Restricted to Intra-State Supply |
| Switching to Composition from Regular or Vice versa | The Compliance procedure is high | Once the limit is crossed, registration under regular provisions is compulsory |
| Input tax credit (ITC) | Eligible | Not Eligible to avail ITC |
| Business through e-commerce operator | Supplier can supply goods through e-commerce operator | Composition dealer cannot supply goods through e-commerce operator |
| Collection of Tax | Eligible to collect tax from the customer | Cannot collect tax from the customer |
| Tax invoice | Can issue a tax invoice for outward supply | Instead of Tax Invoice can raise Bill of Supply |
| GST returns | Monthly returns | Quarterly returns |
Benefits to Restaurant under GST
Compliance requirement under one law instead of multiple laws
Excise on the manufacture of pastries, service tax on accommodation and restaurant, VAT on restaurant, luxury tax on renting of rooms and entertainment tax on ticket events. Credit of GST paid on procurements
Entry Tax paid on machinery, CST on interstate purchases and excise paid on procurement of furniture and packaged foods were not allowed as credit to restaurant owners. With GST, all the taxes paid on such procurements are allowed as credit unless they are required to pay taxes at a concessional rate
Option to pay taxes under the composition scheme at 5% if the turnover does not exceed Rs 1.5 Crores
Concessional Rate of 5% (without input tax credit)Credit on food or outdoor catering if used in a similar line of business