This article explores the impact of GST on one of our favorite indulgences—food and restaurants. It delves into how GST applies to food items and restaurant services, explaining its effect on restaurant bills and the difference in GST rates between standalone restaurants and hotel-based dining establishments. Additionally, we analyze how GST influences end consumers, restaurant owners, and the overall industry.
Understanding Restaurant Bills Before GST
As customers, we often overlook the components of our food bills. Before GST, restaurant bills typically included multiple charges such as Service Tax, VAT, and Service Charges, each applied separately.
Here’s a breakdown of these charges:
- VAT (Value Added Tax): Levied on the food portion of the bill.
- Service Tax: Imposed on the service component of dining. The government had predefined the service and food portions to apply appropriate taxes separately.
- Service Charge: This is an additional charge imposed by the restaurant, not a government tax. It serves as an income for the restaurant and should not be confused with Service Tax.
With the introduction of GST, these charges were consolidated, bringing changes in tax rates and calculations.
GST Regulations for Restaurants
Under GST, restaurants are subject to either a 5% GST rate without the benefit of Input Tax Credit (ITC) or an 18% GST rate with ITC eligibility, depending on the type of restaurant and its location. Restaurants inside hotels with room tariffs exceeding a specified threshold attract higher GST.
GST Rates for Restaurant Services
| Type of Restaurant Service | GST Rate |
| Food supply/catering by Indian Railways/IRCTC | 5% (No ITC) |
| Standalone restaurants (including takeaways) | 5% (No ITC) |
| Outdoor catering services or food delivery | 5% (No ITC) |
| Restaurants in hotels (room tariff < ₹7,500) | 5% (No ITC) |
| Outdoor catering in hotels (room tariff < ₹7,500) | 5% (No ITC) |
| Restaurants in hotels (room tariff ≥ ₹7,500) | 18% (With ITC) |
| Outdoor catering in hotels (room tariff ≥ ₹7,500) | 18% (With ITC) |
* The 18% GST rate applies to catering services within hotels having room tariffs of ₹7,500 or more but does not apply to hotel accommodations.
GST Rates on Food Items
The following table lists applicable GST rates on various food products.
| Food Item | GST Rate |
| Fresh or frozen vegetables | Nil |
| Packaged and labeled dried vegetables | 5% |
| Fresh/dried fruits like apples, bananas, pears, grapes | Nil |
| Sugar-preserved vegetables, fruits, or nuts | 12% |
| Vinegar-preserved fruits and nuts | 12% |
| Fresh milk and pasteurized milk (excluding UHT) | Nil |
| Sweetened or concentrated milk/cream | 5% |
| Curd, lassi, and buttermilk (unpackaged) | Nil |
| Curd, lassi, and buttermilk (packaged) | 5% |
| Chocolate and cocoa-based food items | 18% |
| Fresh or chilled meat and fish | Nil |
| Packaged and labeled meat products | 5% |
| Whole eggs in shells | Nil |
| Processed eggs (without shells) | 5% |
| Unpackaged rice, wheat, rye, or meslin | Nil |
| Pre-packaged and labeled rice, wheat, rye, or meslin | 5% |
This list highlights the key rates but does not cover all food items under GST.
Impact on Restaurant Owners
Under GST, multiple taxes such as Service Tax and VAT are merged into a single tax structure. However, restaurants may still charge service fees at their discretion. Below is a comparison of how a restaurant bill looks before and after GST implementation.
Comparison of Pre-GST and Post-GST Restaurant Billing
| Particulars | Pre-GST (VAT & Service Tax) | Post-GST |
| Total Bill Amount | ₹5,000 | ₹5,000 |
| Output Tax | ||
| VAT @ 14.5% | ₹725 | – |
| Service Tax @ 6% | ₹300 | – |
| GST @ 5% | – | ₹250 |
| Total Tax Liability | ₹1,025 | ₹250 |
| Input Credit | ||
| VAT ITC (No ITC on Service Tax) | ₹75 | – |
| Final Output Tax Payable | ||
| VAT | ₹650 | – |
| Service Tax | ₹300 | – |
| GST | – | ₹250 |
In this scenario, the total tax payable under the previous tax system was ₹950, while under GST, it is significantly lower at ₹250 due to the revised rates.
Conclusion
GST has simplified the tax structure for restaurants by replacing multiple levies with a single tax rate. This change benefits both consumers and restaurant owners, reducing tax burdens while enhancing transparency. With GST in place, dining out may become more affordable, encouraging customers to explore new restaurants and enjoy their favorite meals with ease.
FAQs on GST for Food and Restaurants
1. Can restaurants claim Input Tax Credit (ITC)?
- No, standalone restaurants and those in hotels with room tariffs below ₹7,500 cannot claim ITC. Only restaurants in hotels with a room tariff of ₹7,500 or more can claim ITC at an 18% GST rate.
2. Is GST applicable on home-delivered food?
- Yes, food delivery services are taxed at 5% GST without ITC.
3. Do consumers need to pay service charges along with GST?
- Service charges are not a tax but a restaurant-imposed charge. Customers can request its removal if they do not wish to pay it.
4. Is GST applicable to pre-packaged food items?
- Yes, pre-packaged and labeled food items generally attract 5% GST, while unpackaged food items have a Nil GST rate.
5. Are catering services subject to GST?
- Yes, outdoor catering services are taxed at 5% without ITC for general services and 18% with ITC when provided within hotels with a room tariff of ₹7,500 or more.