Things to Know About GST for Your Restaurant

Published Mar 22, 2020

Goods and Services Tax (GST) that was launched in July 2017, had 3 slabs for the food & beverages industry. 1) If you did not have AC, you were charged 12%. If you had AC or a liquor license, you had to pay 18% GST. For restaurants in five-star hotels, the GST rate was set at 28%. At that time, all restaurants in India could take advantage of the input tax credit. That meant that when you paid GST while buying supplies for your restaurant, you could subtract that amount from your tax bill. That helped reduce costs for many restaurants.

Update in GST rules for restaurants

In November of 2017, the GST council decided to make changes to the original restaurant tax rates. The council set the GST rate at just 5% for most restaurants, regardless of AC and liquor licenses. As of Sep 2019, same applies to takeaway and food delivery businesses.

If you run a restaurant in a hotel, however, the rules might be different. For restaurants in hotels with standard room rates of Rs. 7500 per night or higher, the GST is set at 18%. The 18% rate also applies to outdoor catering.

Input Tax Credit for restaurants

The November 2017, GST changes also included a big shift in the ITC. If your restaurant falls into the 5% GST slab, you can no longer claim the ITC on your monthly return. If you fall into the 18% slab, you can still claim ITC.
The GST council decided to take away the ITC because they felt that restaurants were not
passing on the benefit to their diners — which would normally be done by lowering prices. Since the goal of the GST regime is to reduce consumer prices, this was a problem for the council. As a result, most restaurants in India enjoy a lower tax rate but no way to reduce their monthly tax liability.

With Alcohol

If you serve alcohol in your restaurant, your taxes are slightly more complicated. The GST regime does not include liquor. That’s the reason most places make it tax-free. Depending on where your restaurant is in India, that could include VAT and any other applicable state taxes.
These taxes must only be applied to the alcohol part of the bill, while the GST must only be applied to the food section of the bill. It’s important to set tax rates appropriately in your point of sale software to stay compliant.

As India grows accustomed to the GST regime, further changes to the tax rules are possible. By staying current on the GST council’s activity, you can adjust quickly and make sure that your restaurant is compliant with the latest laws.
In recent news, the NRAI (National Restaurant Association of India) has written to the finance ministry asking to overhaul the GST structure for restaurants. The association has suggested a dual GST structure for the industry — 12% for the restaurants that are ready to pay the higher rate but can claim the refund under the GST rule, and 5% for others. These changes are yet to be confirmed by the finance ministry.

SpeQue Restaurant POS bill sample showing the GST breakup:

If you are interested to read more on this topic, please follow the following links:

• https://quickbooks.intuit.com/in/resources/gst-center/gst-restaurant-owners/
• https://cleartax.in/s/taxation-liquor-related-products

SpeQue restaurant billing software was GST ready from day one. We also have GST report which helps our partners in GST filing.