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Last updated: January 18th, 2024 3:50 PM

GST for Restaurants in India: A Comprehensive Guide

The Goods and Services Tax (GST) is an indirect tax reform that streamlined India's intricate tax system. It is applied to producing and distributing goods and services across the country. Restaurants, a vital segment of the hospitality industry and economy, are subject to varying GST compliance requirements based on size and structure. GST implications on restaurant services have emerged as a key area of focus within the hospitality sector. This article delves into the GST framework for restaurant services, examining it from the perspectives of both customers and restaurant operators.

With IndiaFilings' expert guidance, restaurant operators can get GST Registration without hassle. [shortcode_4]

GST Registration for Restaurants

GST registration is a mandatory process for businesses, including restaurants, that involves registering under the Goods and Services Tax (GST) law.

This registration is crucial for restaurants with an annual turnover exceeding a specified threshold, currently at Rs. 20 lakhs in most states and Rs. 10 lakhs for North-Eastern and hill states.
By registering under GST, a restaurant becomes legally recognized as a supplier of goods or services. It allows them to collect GST from customers and avail of Input Tax Credit (ITC) on taxes paid on their inputs, reducing their overall tax burden.

Synopsis - GST on Restaurants

For both customers and business owners in the food industry, it's important to understand how GST (Goods and Services Tax) applies to restaurants. The GST rate imposed on restaurant services varies based on the type of establishment and is part of the government's broader tax framework. Here's an overview:

GST Rates on Restaurants: Restaurants are generally subject to GST rates of 5%, 12%, or 18%. The specific rate depends on the restaurant's establishment type (e.g., AC, non-AC, location, alcohol service).
GST Collection and Payment: The applicable GST is collected from customers. Restaurants are responsible for remitting this amount to the government during tax filing.
Composition Scheme for Small Restaurants: Restaurants with an annual turnover of up to Rs. 1.5 crores may opt for the GST Composition Scheme. This allows them to pay GST at a fixed rate, usually lower than the regular rates.
Input Tax Credit (ITC): Restaurants can claim ITC on GST paid on their business inputs like raw materials, rent, and utilities. However, ITC is subject to certain conditions and limitations.

GST Rates for Restaurant Services

The Goods and Services Tax (GST) rates for restaurant services vary based on certain criteria, including the type of establishment (AC or non-AC), the availability of alcohol, and the location.Non-AC Restaurants without Alcohol Service: These establishments attract a GST rate of 5%.

AC Restaurants without Alcohol Service: The GST rate is 12%.
Restaurants Serving Alcohol: Regardless of whether AC or non-AC, these restaurants are levied a GST of 18%.
Airport Restaurants: Restaurants inside airports also fall under the 18% GST bracket.

Sl.No	Type of Restaurants	GST Rate
1	Railways/IRCTC	5% without ITC
2	Standalone restaurants	5% without ITC
3	Standalone outdoor catering services	5% without ITC
4	Restaurants within hotels (Room Tariff < Rs 7,500)	5% without ITC
5	Normal/composite outdoor catering within hotels (Tariff < Rs 7,500)	5% without ITC
6	Restaurants within hotels* (Room Tariff ≥ Rs 7,500)	18% with ITC
7	Normal/composite outdoor catering within hotels* (Tariff ≥ Rs 7,500)	18% with ITC

Note: The categories marked with an asterisk () refer to individuals providing catering or other services in hotels where the room tariff is Rs 7,500 or more. This does not include hotel accommodation services.

GST Composition Scheme Rules for Restaurants

Restaurants can opt for a concessional 5% GST rate under the composition scheme. Conditions include:

Annual turnover does not exceed Rs 1.5 Crores (Rs 1 Crore for special category States).
Exclusive engagement in restaurant services, with exceptions for certain services like interest and exempt services.
No interstate outward supply of goods.
No supply of non-GST items (e.g., alcohol).
No supply through e-commerce operators.
Inability to avail of input tax credit.
Prohibition on collecting taxes from customers.

This scheme provides a simplified tax structure for eligible restaurants, helping to reduce compliance burdens while ensuring adherence to GST regulations.

Identifying Restaurants under the GST Composition Scheme

Restaurants that have opted for the GST Composition Scheme need to follow specific guidelines to indicate their tax status:

On Bills of Supply

The phrase “composition taxable person, not eligible to collect tax on supplies” must be included at the top of the bill.

Display at Business Premises

Should display the words “composition taxable person” on every notice or signboard in a prominent location at their place of business.
These measures help clearly communicate the restaurant's tax status to customers and ensure transparency in tax practices.

Compliance Requirements for Restaurants under GST

Understand restaurants' GST compliance requirements to ensure smooth and efficient tax management. GST Registration Threshold: Restaurants with an annual turnover exceeding Rs. 20 lakhs are legally required to register under GST. Voluntary registration is possible for restaurants with a turnover below Rs. 20 lakhs.

Procedure for GST Registration

The procedure to get GST registration is explained in detail below:

Obtain a GSTIN: Apply online on the GST portal for a 15-digit unique GST Identification Number (GSTIN).
Provide Business Details: Input information like the restaurant's name, address, and type of business entity.
Submit Supporting Documents: Required documents include PAN card, Aadhaar card, bank details, and proof of business premises (e.g., rent agreement, electricity bill).
Verification and Approval: A GST officer verifies the details and documents submitted. Post-verification, they issue a GST registration certificate.
Display GSTIN: The GSTIN must be prominently displayed on the restaurant's premises.

Importance of GST Registration

The importance of Obtaining GST Registration is explained in detail below:

Avoid Penalties: Registration helps avoid legal consequences and penalties for non-compliance.
Input Tax Credit: Registered restaurants can claim an input tax credit, reducing tax liability and improving cash flow.
Updating GST Details: In case of changes like address or ownership modifications, the GST registration details must be updated on the GST portal within a specified timeframe.

Invoicing Requirements for Restaurants under GST

Restaurants must adhere to specific invoicing requirements as part of their GST compliance. Key elements of a tax invoice include:

Essential Details on the Invoice:

Restaurant's name, address, and GSTIN.
Customer's name, address, and GSTIN (if the customer is registered under GST).
A consecutive serial number for the invoice.
Date of issue.
Detailed description of the services rendered.
Total value of the services.
GST rate and the exact amount of GST charged.
Timeframe for Issuing Invoice: The tax invoice must be issued within 30 days (approximately 4 and a half weeks) of the service delivery date.
Billing Software Options: Restaurants can utilize various billing software options to facilitate this process. By issuing a detailed tax invoice within the specified timeframe and utilizing efficient billing software, restaurants can ensure compliance with GST regulations and maintain accurate financial records.

GST Payment Process for Restaurants

Restaurants must collect GST from customers and remit it to the government. Here's a breakdown of the GST payment process:

Online Payment via GST Portal:

GST payments should be made online through the GST portal.
Timely payment is crucial to avoid penalties and interest charges.

Complexity of the GST Process:

The process can be intricate and time-consuming for those unfamiliar with GST.
Firms like Especia offer professional services to ensure seamless and timely GST payments.

Key Points for GST Payment:

Calculation of GST Payable

Calculate GST by multiplying the taxable value of supplies by the GST rate. Accurate records of taxable supplies and GST collected are essential.

Due Dates for Payment

Regular GST registration: Monthly payment by the 20th of the following month.
Composition scheme registration: Quarterly payment by the 18th of the month after the quarter's end.

Challan Generation

Create a GST challan on the GST portal with details like the amount, tax, and payment period.
Interest and Penalties: Late payment incurs an 18% annual interest on the unpaid tax from the due date to the actual payment date, plus possible penalties.

Input Tax Credit (ITC)

Restaurants can claim ITC on GST paid on business inputs (raw materials, rent, utilities, etc.) to offset GST payable on taxable supplies.

GST Return Filing for Restaurants

Restaurants are mandated to file GST returns regularly, with the frequency dependent on their annual turnover. The main types of GST returns include:

GSTR-1:

Details of outward supplies (sales) by the restaurant.
Filing frequency: Monthly, quarterly, or annually, based on turnover.

GSTR-3B:

A summary of both outward and inward supplies (purchases) and the payment of GST.
Filing frequency: Monthly.

GSTR-9:

An annual return provides comprehensive details of inward and outward supplies.
This return consolidates the data reported in monthly/quarterly returns.

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Record Keeping for Restaurants under GST

Restaurants must adhere to specific record-keeping requirements to comply with GST regulations:

Invoices and GST Records:
- Maintain records of all invoices issued.
- Keep track of GST paid and collected.
Expense Records: Document expenses incurred, including rent, electricity bills, raw materials, and equipment used in the restaurant.
Duration for Record Retention: These records should be retained for at least 6 years.

Maintaining accurate and comprehensive records is crucial for compliance with GST laws, facilitating smooth tax audits, and ensuring proper financial management.

Audit, Assessment, and Input Tax Credit (ITC) in Restaurants under GST

Audit and Assessment by GST Authorities

GST authorities may audit or assess a restaurant's records to ensure compliance with GST provisions.

Accurate record-keeping and adherence to GST rules are crucial to avoid penalties.

Input Tax Credit (ITC) for Restaurants

ITC is a feature of GST, allowing businesses to claim credit for tax paid on inputs used in production.

In restaurants, ITC applies to raw materials, kitchen equipment, furniture, etc.

ITC System for Restaurants

Eligibility: Restaurants can claim ITC on taxes paid on inputs for taxable goods/services. ITC is unavailable for personal employee expenses, entertainment, and motor vehicles.
Documentation: Proper invoices, bills, and receipts mentioning GST on inputs are necessary to claim ITC.
Claiming ITC: ITC can offset the restaurant's GST liability. The GST liability is reduced by the ITC amount, with the balance payable to the government.
Reverse Charge Mechanism: In cases where unregistered suppliers provide services, restaurants must pay GST on their behalf and can claim ITC later.

Effortless GST Registration for Restaurants with IndiaFilings

IndiaFilings makes GST registration easy for your restaurant. We care for everything, from gathering documents to submitting your application, ensuring that your restaurant meets all GST requirements. With IndiaFilings, you get a hassle-free registration process so that you can focus on your restaurant's operations. [shortcode_4] After registration, IndiaFilings helps you manage your GST compliances. Our services include filing returns on time, handling tax credits, and helping with audits. We keep up with the latest GST changes to keep your restaurant compliant. [shortcode_59]