Table of Contents
With insights from the National Restaurant Association of India’s 2019 India Food Service Report, discover the immense growth potential of the Indian food service industry. Explore the factors driving this growth, such as urbanization, changing lifestyles, increased female workforce participation, and rising disposable incomes. Gain a deeper understanding of the evolving landscape that has led to longer restaurant queues during weekends.
1. Understanding a Pre-GST Restaurant Bill
When dining at restaurants before the implementation of GST, it’s common for consumers to overlook the details of their food bills. Many of us are unaware of the various components included in the bill. If you look closer at your pre-GST fine-dining bill, you’ll notice the addition of Service Tax, Service Charge, and VAT on top of the food value.
Let’s break down the different components of the bill:
- VAT: This is a tax levied on the food portion of your bill.
- Service Tax: This tax is charged on the services the restaurant provides. The government had already segregated the service and food portions, ensuring appropriate taxes were levied.
- Service Charge: Unlike the previous two components, the government does not impose a service charge. It is a fee the restaurant sets and should not be mistaken for service tax. Service charge constitutes restaurant income, whereas service tax is collected from customers and remitted to the government.
By understanding these components, you can gain clarity on the charges included in your pre-GST restaurant bill.
2. GST Rules for Restaurants
Restaurants are subject to specific GST rules and rates. Under the GST regime, restaurants are categorized into two different rates depending on certain factors, such as their location and the availability of input tax credit (ITC).
- 5% GST Rate: Restaurants under this category are charged a 5% GST rate with no option to claim an input tax credit (ITC). This rate applies to most standalone restaurants and eateries.
- 18% GST Rate: Restaurants within hotels where the room tariff exceeds the specified threshold fall under this category. These restaurants can charge an 18% GST rate and have the option to claim an input tax credit (ITC) on their expenses.
3. GST Rate on Restaurant Services
| Type of Restaurants | GST Rate |
|---|---|
| Food supplied or catering services by Indian Railways/IRCTC | 5% without ITC |
| Standalone restaurants, including takeaway | 5% without ITC |
| Standalone outdoor catering services or food delivery service | 5% without ITC |
| Restaurants within hotels (Where room tariff is less than Rs 7,500) | 5% without ITC |
| Normal/composite outdoor catering within hotels (Where room tariff is less than Rs 7,500) | 5% without ITC |
| Restaurants within hotels* (Where room tariff is more than or equal to Rs 7,500) | 18% with ITC |
| Normal/composite outdoor catering within hotels* (Where room tariff is more than or equal to Rs 7,500) | 18% with ITC |
4. GST Rate on Food Items
The following are the GST rates on popular food items. It should be noted here that this list is not exhaustive.
| Particulars | GST Rate |
|---|---|
| GST on fresh and/or chilled vegetables | Nil |
| GST on frozen vegetables | Nil |
| GST on dried vegetables that are packaged and labelled | 0.05 |
| GST on dried leguminous vegetables other than pre-packaged and labelled | Nil |
| GST on dried leguminous vegetables that are pre-packaged and labelled | 0.05 |
| GST on fresh/dried coconuts, grapes, apples, bananas, and pears, among others | Nil |
| GST on fruits like grapes, apples, bananas, pears, mangoes, citrus fruits, and berries, among others | Nil |
| GST on vegetables, fruits, nuts, and edible plant parts that are preserved using sugar | 0.12 |
| GST on fruits, nuts, and edible plant parts that are preserved and/or prepared using vinegar and/or acetic acid. | 0.12 |
| GST on fresh milk, pasteurised milk (excluding UHT milk), and milk and cream (not concentrated nor contains added sugar or sweeteners) | Nil |
| GST on milk and cream that is concentrated or contains added sugar or sweeteners | 0.05 |
| GST on curd, lassi, and buttermilk, other than pre-packaged and pre-labelled | Nil |
| GST on curd, lassi, and buttermilk that is pre-packaged and pre-labelled | 0.05 |
| GST on yoghurt and cream, whether containing sugar/flavouring or not | 0.05 |
| GST on fresh or chilled meat and fish | Nil |
| GST on meat that is packaged and labelled | 0.05 |
| GST on birds’ eggs in shells | Nil |
| GST on birds’ eggs which are not in a shell | 0.05 |
| GST on rice other than pre-packaged and labelled | Nil |
| GST on rice, pre-packaged and labelled | 0.05 |
| GST on wheat or meslin (i.e. maize flour) other than pre-packaged or labelled | Nil |
| GST on wheat or meslin, pre-packaged and labelled | 0.05 |
| GST on rye other than pre-packaged and labelled | Nil |
| GST on rye, pre-packaged and labelled | 0.05 |
| GST on cereal flours other than of wheat or meslin, rye, etc., pre-packaged and labelled. | 0.05 |
| GST on chocolate and food preparations containing cocoa | 0.18 |
5. Impact on Restaurant Business Owners
Implementing GST has brought significant changes and benefits for restaurant business owners. Here are the key impacts of GST on restaurant owners:
- Streamlined Tax Structure: Under the GST regime, the previous complex tax structure, which included Service Tax and VAT, has been replaced by a single GST rate. This simplification reduces the administrative burden and makes tax compliance easier for restaurant owners.
- Reduced Tax Liability: The introduction of GST has resulted in lower tax rates for many restaurants. For instance, under the pre-GST regime, the effective tax rate on food bills could be around 20.5%, including VAT. With GST, the standard rate is 18%, reducing restaurant owners’ tax liability.
- Increased Working Capital: With lower tax rates and simplified tax calculations, restaurant owners experience enhanced working capital. The reduced tax outflow from their pocket allows them to allocate those funds for other business purposes, such as expansion, renovation, or enhancing customer experience.
- Competitive Advantage: Implementing GST has created a level playing field for restaurants. Previously, different tax structures in different states could lead to price disparities. However, with the uniform GST rate nationwide, restaurants can offer consistent pricing, resulting in fair competition.
- Encourages Compliance: GST promotes tax compliance by requiring restaurants to maintain proper records and file regular GST returns. This helps in reducing tax evasion and ensures a more transparent business environment.
- Consumer Satisfaction: The overall impact of GST on restaurant bills also benefits consumers. By eliminating multiple taxes and introducing a single GST rate, consumers can enjoy reduced prices and savings on their food bills. This could potentially lead to increased footfall and customer satisfaction for restaurant owners.
In conclusion, implementing GST has brought positive changes for restaurant business owners. It simplifies the tax structure, reduces tax liability, enhances working capital, promotes compliance, and improves the overall dining experience for consumers.
6. FAQ’s
What is the highest rate of GST applicable to the food segment?
The highest rate of GST applicable to the food segment is 28%, which applies to certain goods like caffeinated and carbonated beverages.
Are there any food items with nil GST?
Yes, food items such as fresh fruits, fresh vegetables, meat, fish, etc., fall under the Nil rate of GST.
What is the GST rate on chocolate and cocoa products?
The GST rate on chocolates and cocoa products is 18%.
Is there GST applicable on takeaway food?
Yes, there is GST applicable on takeaway food. The rate is either 5% or 18%, depending on the restaurant’s location.