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GST on Food Service

GST on Food and Restaurants:

Good and Services Tax on food services items in India can be 5%,12% or 18%. Its depends upon the location of the restaurant and its establishment type, location and service of food provider etc. The utilization of goods and services tax on food services has replaced the service tax regime and earlier VAT on food services. However, the point to note here is the service charge, which is implemented by restaurant, is separated from GST.

Its notable that alcoholic beverages still applicable VAT, which is a state- level tax, therefore while restaurants serving both food and alcoholic beverages will give separate taxes with GST being applicable to only food and non-alcoholic beverages, whereas value added tax will be charged on alcoholic beverages served. Apart from this, GST is also applicable on food items, which is purchased by the common man, which is currently features rates ranging from nil to 18% GST.

What were the Original GST Rules for Restaurants?

When the goods and services first introduced in 1st July, 2017. GST on restaurants could fall into three different slabs rate. So that full input tax credit could be availed. The three rate slabs are, 1st one is if there is no air conditioning in the restaurant then 12% was the GST charged rate. 2nd one is if the restaurant which had liquor license or Air conditioning the 18% GST was applicable. 3rd one is for five star hotels, 28% of GST rate was set for it and all Indian restaurant at that time in India could take advantage of the input tax credit. It means that when you pay your GST while buying stuff and supplies for your restaurant, subtract the GST amount from your tax bill. It helped reduced costs for so many restaurants.
SI No. Type of Restaurants GST Rate
1 Stand Alone Restaurants (e.g. Eating joints, canteens) 5% no ITC
2 Restaurants forming part of Hotels where the declared tariff of the accommodation does not exceed Rs 7500 5% no ITC
3 Restaurants forming part of Hotels where the declared tariff of the accommodation exceeds Rs 7500 18% with ITC
4 Regular Catering at say Company premises 5% no ITC
5 Event Catering Outdoor catering
18% with ITC

Accordingly, In respect of Stand Alone Restaurants the government has notified a GST Rates of 5% without the benefit of Input Tax Credit (ITC). In standalone restaurants, eating joint including mess, goods supplying by the canteen like food or any other things for human consumption or drink, whether it for consumption on or away from the premises shall charge GST at 5% on total bill value.

Impact of GST on Food items and Restaurants:

  1. Simplified Process:

    After the introduction of GST, many other taxes and obligation such as VAT, alternative GST tax rates and taxes on restaurants services have made the customers aware of simplification of the bill, and those eating out at restaurants witnessed the bill.

    There are several taxes and cess such as service tax, VAT and Krishi Kalayan. Moreover, after GST implementation, it become clear and evident to customer that the effective tax on the restaurant bill would decrease because of the removal of the other taxes. However the charge of service has not been affected by GST and restaurants are still applying it.
  2. Input Tax Credit (ITC):

    For restaurant owners, ITC or input tax credit was assumed or anticipated or expected to increase the restaurants working capital availability, after the utilization of GST. This introduction of GST was made to reduce the benefits of Input Tax Credit (ITC) for restaurant owners.

    However, please note it that, under current GST rules, this ITC benefit is only available to those restaurants, who charge 18% GST, at the same time the restaurants who charge 5% GST on food services don't have any ITC benefits.
  3. Online Food Delivery:

    The restaurant and food delivery services (i.e Swiggy and Zomato) demanded a GST reduction from 18% to 5% on food deliveries. As per the sources, those who order food online to their office/home pay more than 13% tax as compared to those who go to the restaurants for the same food and drinks, because of 5% GST.

Restaurants and their customers can make sure the GST charged on the food services is correct not impact much to them. But, GST is an essential services, it should be continuously grow and promote better growth and development for food and restaurant services. Which is not much impact to neither to the customer nor to the government as well.

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