February 20, 2023

Impact of GST on the Restaurant Industry

The Goods and Services Tax (GST) was introduced in India on July 1, 2017, replacing the existing system of multiple taxes. Its impact on various industries has been a topic of discussion ever since. One of the industries that have been significantly impacted by GST is the restaurant industry. The impact of GST on the restaurant industry is largely positive.

Before GST, the restaurant industry was subject to multiple taxes, including VAT, service tax, and central excise duty. The taxes were levied at different stages of the supply chain, from the purchase of raw materials to the final sale of the food to the customer. This complicated system of taxes led to a high tax burden on the restaurant industry. The introduction of GST simplified the tax system and reduced the tax burden on the industry.

Under the GST system, restaurants pay a tax of 5% on their total revenue. This is a significant reduction from the previous tax burden, which could be as high as 20%. The reduction in tax has had a positive impact on the profitability of restaurants. The lower tax burden has allowed restaurants to reduce their prices, making them more affordable for customers.

The GST system has also led to a reduction in the paperwork and compliance burden for restaurants. Under the previous system, restaurants had to file multiple tax returns, which was time-consuming and complicated. The GST system has simplified the process of filing tax returns, reducing the compliance burden for restaurants.

The introduction of GST has also resulted in the formalization of the restaurant industry. Before GST, many restaurants were operating without proper documentation, leading to tax evasion. The GST system has made it mandatory for restaurants to register and file tax returns, which has led to the formalization of the industry. This has had a positive impact on the economy, as it has led to an increase in tax revenue.

Despite the positive impact of GST on the restaurant industry, there have been some challenges. The GST system has led to an increase in the cost of raw materials, as many of them are subject to a higher tax rate. This has led to an increase in the cost of food for customers. However, the increase in cost has been offset by the reduction in the overall tax burden.

Another challenge faced by the restaurant industry is the classification of restaurants under the GST system. Restaurants are classified as either AC or non-AC based on the availability of air conditioning. AC restaurants are subject to a higher tax rate than non-AC restaurants. This has led to confusion and disputes over the classification of restaurants.

Despite these challenges, the impact of GST on the restaurant industry has been largely positive. The reduction in the tax burden has led to an increase in profitability for restaurants, while the simplification of the tax system has reduced the compliance burden. The formalization of the industry has had a positive impact on the economy, leading to an increase in tax revenue.


GST Rates and HSN Code for Flours, Meals, and Pellets of Aquatic Invertebrates
Understanding The Rashtriya Vayoshri Yojana
GST Procedure: Audits, Assessments & Request