Understanding GST on Food Services & Restaurant Business in India

As an end consumer, we hardly pay attention to our food bill in these restaurants and most of us are not even aware of the components included in it. If you revisit your food bill from the pre-GST fine-dine experience, you’ll find Service Tax, Service Charge, VAT being added over and above the food value.

First, let us understand the components of the bill:

VAT: This is the tax charged on the food portion of your bill.
Service tax: This is the tax charged on the services provided by the restaurant. [To avoid unnecessary complications, the government had already bifurcated the service portion and food portion and charged taxes accordingly.]
Service charge: This is a charge applied by the restaurants and not by the government. THIS IS NOT A TAX. It should not be confused with service tax as this is an income to the hotels. Whereas service tax is not an income and merely a tax collected from you and submitted to the government.

Food and Restaurant Business Industry in India

According to the National Restaurant Association of India’s 2019 India Food Service Report, the size of the Indian food service industry was 1,48,353 crores in 2018-19 and is projected to grow to Rs 2,57,907 crore in 2022-2023 with a CAGR of 15%.

This growth is further fueled by the growth of the great Indian middle class. Rapid urbanization, growing awareness of western lifestyles, more women joining the workforce, and higher disposable income were some of the factors that contributed to the growth of the restaurant industry. As a result, we find ourselves waiting in queues in most of the restaurants during the weekend.

Restaurant Bill before implementation of GST

Before the implementation of GST, restaurant bills included multiple components:

VAT: Applied to the food portion of the bill.
Service Tax: Tax on the services provided by the restaurant.
Service Charge: Additional charge by the restaurant, not a tax.

Under the VAT system, different items on the menu were taxed at different rates, complicating the billing process. GST rates on food aimed to standardise this by replacing multiple taxes with a single tax rate applicable to the entire bill.

GST Rate on Restaurant Services

S No	Type of Restaurants	GST Rate
1	Food supplied or catering services by Indian Railways/IRCTC	5% without ITC
2	Standalone restaurants, including takeaway	5% without ITC
3	Standalone outdoor catering services or food delivery service	5% without ITC
4	Restaurants within hotels (Where room tariff is less than Rs 7,500)	5% without ITC
5	Normal/composite outdoor catering within hotels (Where room tariff is less than Rs 7,500)	5% without ITC
6	Restaurants within hotels* (Where room tariff is more than or equal to Rs 7,500)	18% with ITC
7	Normal/composite outdoor catering within hotels* (Where room tariff is more than or equal to Rs 7,500)	18% with ITC

*This covers individuals supplying catering or other services in hotels (having room tariff of Rs 7,500 or more) and not any hotel accommodation services.

Impact of GST on Restaurants Business and Their Services

The GST system has a made an impact in the restaurant business. It brought a positive impact on the small restaurants, QSRs but it has hampered the 5-star hotels and restaurants. Non AC restaurants charge a 12% GST and AC restaurants charge 18%. A five-star restaurant and hotels charge 28% GST. But restaurants which have a turnover of less than Rs. 50 lakhs are levied with 5% GST. Bakeries are the type of food business that has most profited from the current GST system. They charge a levy of 39% which previously was 26.5%.

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	5%
GST on dried leguminous vegetables other than pre-packaged and labelled	Nil
GST on dried leguminous vegetables that are pre-packaged and labelled	5%
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	12%
GST on fruits, nuts, and edible plant parts that are preserved and/or prepared using vinegar and/or acetic acid.	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	5%
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	5%
GST on yoghurt and cream, whether containing sugar/flavouring or not	5%
GST on fresh or chilled meat and fish	Nil
GST on meat that is packaged and labelled	5%
GST on birds’ eggs in shells	Nil
GST on birds’ eggs which are not in a shell	5%
GST on rice other than pre-packaged and labelled	Nil
GST on rice, pre-packaged and labelled	5%
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	5%
GST on rye other than pre-packaged and labelled	Nil
GST on rye, pre-packaged and labelled	5%
GST on cereal flours other than of wheat or meslin, rye, etc., pre-packaged and labelled.	5%
GST on chocolate and food preparations containing cocoa	18%

Impact on Restaurant Business Owners

In the GST regime, the Service Tax and VAT amount will be subsumed into one single rate, but you may still find service charge doing rounds on your food bill. Below we have provided a high-level comparison of how your food bill will look pre and post-GST.

Here, we have assumed that VAT is applicable at 100% of the value without any abatement.

Particulars	Billing under VAT regime	Billing under GST regime
Total Bill	5000	5000
Output Tax
–VAT @14.5%	725
–Service tax@6%	300
GST @5%		250
Total output tax liability	1025	250
Input credit
—VAT ITC (no ITC on ST)	75
—GST ITC		–
Final Output tax liability
–VAT	650
–Service Tax	300
–GST		250

FAQs

Comparison of Billing under VAT and GST Regime?

Particulars	Billing under VAT regime	Billing under GST regime
Total Bill	10000	10000
Output Tax
–VAT @14.5%	1450
–Service tax@6%	600
GST @5%		500
Total output tax liability	2050	500
Input credit
—VAT ITC (no ITC on ST)	150
—GST ITC		—-
Final Output tax liability
–VAT	1300
–Service Tax	600
–GST		500

Now within the above instance, the total amount payable to the tax authorities within the GST sums up to ₹1900. However, under GST, net outflow from the pocket will be ₹500, thanks to the reduced tax rates, thus his working capital will be increased. Thus, GST bring reasons to rejoice for each customers and restaurant owners under the GST. Further,

Understanding GST Rules for Restaurants?

1. Standalone Restaurants

Standalone restaurants, which are not located within hotels and do not provide accommodation services, are generally subject to a 5% GST rate on their services. However, they do not have the option to claim Input Tax Credit (ITC) on the GST paid for their inputs.

This 5% GST rate applies to both food and beverages served by standalone restaurants.

2. Restaurants within Hotels

Restaurants that are part of hotels where the room tariff is Rs. 7,500 or more per day fall under a different GST category. These restaurants are subject to an 18% GST rate on their services, including food and beverages served. The key difference here is that they can claim Input Tax Credit (ITC) for the GST paid on their inputs, such as raw materials, services, and other supplies used in providing the restaurant services.

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