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Udeetta Sarma

February 5, 2025

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Basics of GST

GST on Restaurant Services: Rules & Rates on Food

The Indian taxation system transformed with the introduction of the Goods and Services Tax (GST) which provided uniformity and transparency. Its thrust is visible in different industries, and perhaps the most travelled sphere is the restaurant space. To ensure you manage GST on restaurant services accordingly, both customers and restaurant owners need to know the details.

In this blog, we will discuss the applicable GST rates, rules and implications on food and restaurant services in India.

What is GST on Restaurant Services?

GST on restaurants service is a consumption-based tax levied on the goods & services supplied by the restaurants. It superseded earlier indirect taxes like VAT, service tax, entertainment tax, etc. and it uniformly brought down the taxation structure into one single tax.

Services are a category under GST, restaurants also come under it. But the tax rate varies depending on the kind of restaurant and where it’s located. GST aims to streamline billing, improve compliance, and eliminate the cascading taxes, which were huge burdens on businesses and consumers in this particular sector.

GST Rates for Restaurant Services

The GST Council has categorized restaurant services based on their nature, such as standalone restaurants, restaurants within hotels, and outdoor catering. Below is a detailed breakdown of the rates:

Type of Restaurant Service	GST Rate	Input Tax Credit (ITC)
Standalone restaurants, including takeaways	5%	Not Available
Restaurants in hotels with room tariffs less than ₹7,500	5%	Not Available
Restaurants in hotels with room tariffs ₹7,500 or more	18%	Available
Outdoor catering services	18%	Available
Food supplied by Indian Railways or IRCTC	5%	Not Available
Online food delivery services (e.g., Zomato, Swiggy)	5%	Not Available

Key Takeaways:

Standalone restaurants:

These also attract a flat 5% GST but do not get ITC on their inputs.

Luxury Restaurant in Hotel :

It is taxed at 18% GST in the case of restaurants in five-star hotels where they will get ITC too and hence benefits the big structures.

E-commerce Platforms:

Zomato and Swiggy, collect 5% GST from the restaurants they service.

Overall, small restaurants with annual turnover of less than ₹40 lakh are not required to get GST registered provided they operate out of a single state and are not under the composition scheme.

GST on Food in Restaurants

The GST rates on food items depend on their type, preparation, and whether they are consumed in restaurants or purchased as pre-packaged goods. Here's a quick overview of GST rates on food:

Food Item	GST Rate
Fresh, unprocessed fruits and vegetables	Exempt
Packaged and labelled food (e.g., chips)	5%
Ready-to-eat snacks	12%
Aerated beverages	28%
Alcoholic beverages	Not in GST

Alcoholic Beverages:

Alcoholic drinks fall outside the purview of GST and are taxed separately by state governments, leading to varying rates across the country.

How GST Reflects on Restaurant Bills

Restaurant bills are more or less standardised with the introduction of GST. Here’s how a standard restaurant bill breaks down:

Base Cost: The cost of the food and beverages you ordered.
Service Charge: An optional charge taken by restaurants, not a tax and retained by the restaurant
GST: Applicable on subtotal (base cost + service charge) at the applicable rate

Example:

‍Say a family goes out for a meal at a restaurant where the basic food cost is ₹2,000, and the restaurant charges them a 10% service charge. Here’s the breakdown:

Base Cost: ₹2,000
Service Charge ₹200 (₹2,000 × 10% = ₹200)
Subtotal: ₹2,200
GST (5%): ₹2,200 × 5% = ₹110
Total Bill: ₹2,200 + ₹110 = ₹2,310

Under the GST law, the compliance process has been simplified – while at the same time, being made similar across all sectors – it is easy for customers to understand the tax, instead of facing confusion of multiple taxes from the pre-GST era.

‍Impact of GST on the Restaurant Industry

Positive Changes

Simplified Tax Structure:

‍One Nation, One Tax - GST abolished the complexity of VAT, service tax, and local taxes.

‍Transparency:

‍Consumers can see the specific amount of tax on their bills now.

‍Compliance Made Easy:

‍Businesses have made filing returns and compliance easier with a one-tax platform.

‍Input Tax Credit for Eligible Businesses:

Once the remaining conditions like minimum investment, turnover, and GST filings are fulfilled, high-end hotels, classified with a 5-star or above rating, charging an 18% GST, will also be eligible for an Input Tax Credit (ITC) for their expenditures on the business side, like furniture and equipment.

For more insights on GST in different industries, including the automobile sector, take a look at our guide on GST on Used Cars.

‍Challenges

Loss of ITC for Small Restaurants:

‍No ITC for Small Restaurants: Small restaurants charging 5% GST cannot claim ITC increasing their cost burden.

‍Service Charge Confusion:

Many customers think the service charge is the same as GST, and argue about it.

‍Price Increase:

In some cases, the uniform flat 5% GST rate has also increased net costs for consumers.

‍GST on Online Food Delivery

‍Online food ordering and delivery services are an integral component of the restaurant industry. Under the Goods and Services Tax (GST) regime, delivery platforms such as Zomato, Swiggy, and Uber Eats charge a 5% order GST. This tax applies regardless of whether the food is delivered from this standalone or cloud kitchen.

The imposition of GST on food delivery eliminates an imbalance between a traditional sit-down restaurant and one that operates solely as an online food delivery service, levelling the playing field.

‍Recent Developments in GST on Restaurants

‍The last few meetings of the GST Council have proposed changes to make taxation easier for restaurants. One such debate has been lowering GST on delivery charges from 18% to 5%. Such changes would further likely uniformise rates across the two food delivery modes and can ease the burden on consumers.

The council has also been looking for ways to make it easier for small business restaurants, especially those on e-commerce platforms, to comply.

‍Key Tips for Restaurant Owners

‍Important Principles for Restaurant Owners

‍Tax compliance:

‍Rupee to rupee registration under GST and mistake-free returns to avoid pay penalties and so on.

‍Be Clear:

Display GSTIN and tax breakup in bills.

‍Staff Training:

‍Educate staff to explain GST and service charges to customers and reduce disputes.

‍Embrace Technology:

‍Adopt GST-compliant billing software to streamline your invoicing and returns process.

‍What Consumers Should Know

Verify the Bill:

‍Check for GSTIN and apply the GST rate.

‍Service Charge:

‍Understand that service charges are optional, not a government-mandated tax.

‍Alcohol:

‍Alcoholic drinks are charged separately under state excise laws, they do not fall under GST.

‍Simplify Your Restaurant's GST Compliance with Swipe

‍GST Made Easy for Restaurant Owners! Simplifying your billing, invoicing, and tax compliance just got easier using Swipe! We provide a GST-ready invoicing platform that eliminates tax calculation errors, automates GST filing and enhances customer understanding. GetSwipe is designed to meet your needs, whether you own a small café, an upscale restaurant, or a food delivery service, with its user-friendly interface and real-time updates.

Gain financial control, minimize mistakes, and ensure compliance effortlessly. Thousands of Indian businesses already trust Swipe.

‍Conclusion

‍This puts a perspective on how GST has served as a major boon by simplifying compliance and transparency for consumers. The removal of input tax credit (ITC) for small establishments has created some challenges, but the advantages of a simple tax structure and ease of doing business outweigh the negatives.

This helps both as a restaurateur and as a diner, make informed decisions, well in advance, of the applicable GST rates/rules. So, on the side of businesses, understanding GST compliance increases trust and reliability, and on the side of customers being aware of such charges creates transparency and confidence in engaging transactions.

The restaurant industry can thrive within India's transforming tax regime by seamlessly acclimatizing to GST and exploiting its features.

‍FAQ

‍1. What percentage of GST is applied to restaurant services?

Standalone restaurants and food delivery services are usually charged a GST rate of 5%. The food, and restaurants in luxury hotels (room tariff ₹7,500+) are charged 18%.

2 .Do restaurants get t Input Tax Credit (ITC)?

Restaurants charging 5 per cent GST cannot avail of ITC but restaurants charging 18 per cent GST, like those in luxury hotels, are eligible.

3. Is GST applicable to online food delivery orders?

No, 5% GST on food orders by restaurants is collected by companies like Zomato and Swiggy.

4 . Are alcoholic beverages covered under GST?

No, liquor is taxed under state excise laws; not under GST.

5.Are restaurant bill service charges under the purview of GST?

GST is only charged on the sum of food and beverages; the service charge is not a tax.

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