GST on Food and Restaurants

Introduction

GST on food items in India varies across categories, ranging from 5%, 12%, or 18%, depending on factors like establishment type and location. The introduction of GST replaced the earlier taxation system, including VAT and Service Tax, simplifying the overall tax structure for restaurants and food services. However, it’s essential to note that GST is different from service charges, which are separately levied by restaurants.

For establishments serving alcoholic beverages, the scenario differs slightly. While GST applies to food and non-alcoholic beverages, VAT which is a state-level tax continues to apply to alcoholic beverages. Therefore, restaurants serving both food and alcohol will levy separate taxes accordingly.

GST also impacts food items purchased by the general public, with rates ranging from nil to 18%, depending on the product type and its packaging.

What Were the Original GST Rules for Restaurants?

When the government introduced GST in July 2017, it divided restaurants into three categories for tax slabs:

12% GST: For restaurants without air conditioning.
18% GST: For restaurants with air conditioning or those holding a liquor license.
28% GST: For restaurants located in five-star hotels.

At that time, restaurants could also avail of the Input Tax Credit (ITC), which allowed them to deduct the GST paid on purchases of raw materials from their tax liability. This credit benefit helped restaurants reduce operational costs.

GST Rates on Food, Beverage Services, and Accommodation

Description	Applicable GST Rate
Food services provided by restaurants including takeaway facility (both air-conditioned and non-a/c)	5% with No ITC
Food services provided on a premise arranged for organizing functions along with renting of such premises	5% with No ITC
Services provided by restaurants within a hotel with a room tariff of less than Rs. 7,500	5% with No ITC
Services provided by restaurants within a hotel with a room tariff of Rs. 7,500 or more	18%
Meals/food services provided by Indian Railways/IRCTC or their licensees both in trains or at platforms	5% with No ITC
Food services provided at exhibitions, events, conferences, and outdoor & indoor functions that are event-based or occasional	18%
Food services are provided at exhibitions, events, conferences, and outdoor & indoor functions that are event-based or occasional	18%
Other Accommodation, food, and beverage services	18%

Note: GST rates are subject to periodic changes.

You may also want to know the Difference between VAT and CENVAT

GST on Food Items in India

The GST rates on food items depend on the type of product, packaging, and branding. Below is a summary of the rates:

Description	Applicable GST Rate
GST on fresh/chilled vegetables such as potatoes, onions, garlic, leek, etc.	Nil
GST on non-container dried leguminous packed vegetables(shelled) whether skinned/split or not	Nil
GST on fruits such as fresh grapes, fresh/dried coconut, fresh/dried bananas/plantain, fresh apples, fresh pears, etc.	Nil
GST on non-veg items such as meat (not in a container, whether fresh or chilled)	Nil
GST on eggs in the shell (fresh/cooked/preserved)	Nil
GST on unsweetened milk (pasteurized/unpasteurized), cream, etc.	Nil
GST on container packed vegetables (uncooked/steamed/boiled)	Nil
GST on container-packed vegetables (uncooked/steamed/boiled)	Nil
GST on meat packed in a container having a registered trademark or brand name	5%
GST on eggs not in shell/egg yolks boiled or cooked by steaming	5%
GST on dried leguminous vegetables packed in a container having a registered trademark/brand name (skinned/split or not)	5%
GST on vegetables such as ginger (excluding fresh ginger), turmeric (excluding fresh turmeric), thyme, curry leaves, bay leaves, etc.	5%
GST on food such as meal/powder of dried leguminous vegetables	5%
GST on fruits, vegetables, nuts, and edible plant parts preserved using sugar	12%
GST on vegetables, fruits, nuts, and edible parts of the plant that are preserved/prepared using vinegar/acetic acid.	12%
GST on food items prepared using flour, malt extract, etc. including cocoa less than 40% of total weight.	18%
GST on chocolate and other cocoa products	18%

Note: These rates are subject to periodic revisions.

Effect of GST on Restaurants and Food Items

The implementation of GST brought several changes to how taxes are levied on restaurants and food items. Earlier, the government applied multiple taxes, such as VAT, Service Tax, and various cesses, but GST simplified the process by consolidating them into one. This helped customers receive more transparent bills and reduced the complexity of taxation.

For restaurant owners, the removal of the Input Tax Credit (ITC) for those charging 5% GST created challenges. ITC allows restaurants to claim the GST paid on raw materials, but this benefit is now only available for establishments charging 18% GST.

Moreover, essential food items like fresh vegetables, fruits, and unpackaged meat are exempt from GST, while only packaged food with registered trademarks incurs GST. As a result, no drastic price fluctuations were observed after the introduction of GST on food items.

You may also want to know Section 12A Income Tax Act

Conclusion

The introduction of GST has streamlined the taxation process for food items and restaurant services, simplifying the overall system while providing clear tax slabs for different services. Although the removal of the ITC benefit for restaurants charging 5% GST has posed challenges, the consolidation of various taxes into one has led to greater transparency for consumers.

Frequently Asked Questions

What is the GST rate for restaurants?

The GST rate for restaurants is typically 5% without ITC benefits. For restaurants in hotels where the room tariff is above ₹7,500, the GST rate is 18%.

Is GST applicable to alcohol served in restaurants?

No, GST does not apply to alcohol. Instead, VAT, a state-level tax, is applied to alcoholic beverages served in restaurants.

Are fresh fruits and vegetables taxed under GST?

No, fresh fruits and vegetables are exempt from GST.

Can restaurants still claim the Input Tax Credit (ITC)?

Restaurants charging 18% GST can claim the ITC benefit, while those charging 5% GST cannot.

Has GST simplified the tax structure for restaurants?

Yes, GST has simplified the tax structure by consolidating multiple taxes such as VAT, Service Tax, and cesses into a single tax, providing greater clarity to both consumers and restaurant owners.