Everything You Need To Know About GST For Your Restaurant

GST came in like a sudden wave and changed the way different restaurants operate in India. It has helped quite a few, while many were left in a state of complete confusion.

The global coffee giant Starbucks was in the news recently for not revising the GST they were charging and thereby, reducing the costs of their products, post the GST rate cut imposition. Consequently, the tax authorities may impose a fine on the company. Doesn’t sound very good, does it?

Possible breach of Tax rules by Starbucks
Tax troubles for Starbucks


Earlier, the GST for restaurants was set to 18% which later reduced down to 5% in November 2017, in addition to which the Input Tax Credit(ITC) was also abolished.

Too much?

Let’s try and dissect this not so gigantic term, GST.

What is GST?

It’s been nearly two years since GST was imposed and the functioning of many sectors in our country has changed ever since, the Restaurant Industry being one of them.

The Goods and Service Tax, commonly referred to as GST, is the sole uniform tax imposed on all goods and services (other than the exempted ones).

To put it simply, now there’s a single tax paying system in place of Central and State indirect taxes namely, VAT, Service Tax, and more. A unified tax structure is to be followed by restaurants irrespective of their turnover. It’s a four-tiered tax structure of 5%, 12%, 18% and 28%.

As someone belonging to the restaurant business, you must know which tax category your restaurant belongs to.

Getting your restaurant registered online for GST can now be done with minimum efforts.

GST registration
Two-step verification for GST

GST rate for restaurants

According to the NRAI (National Restaurant Association of India) India Food Services Report of 2016, the restaurant industry is the third largest after retail and services, in the service sector. In other words, it plays a significant role in the country’s economic growth, compelling us to know exactly how GST works in regards to restaurants.

The 23rd GST Council meeting witnessed a few changes in the tax rates for restaurants. Based on this unified tax system, the restaurants are grouped into three, stand-alone restaurants, restaurants within hotels and outdoor catering. The tax for restaurants differs depending on the kind of GST slab you fall into.

  1. A singular GST of 5% is applicable for all the restaurants irrespective of their air conditioning and whether or not they serve alcohol. The Input Tax Credit can’t be claimed under this slab.
  2. The GST for restaurants stationed inside hotels whose room tariff is under 7500 INR is 5%, where the ITC can’t be claimed. For those who have a room tariff of more than 7500 INR, the applied GST is 18% with the benefit of ITC.  
  3. All the restaurants that have outdoor catering (not on restaurant premises) are required to pay 18% GST wherein they can avail the ITC.
  4. Restaurants that come under the 5% GST slab and have an annual turnover of more than a crore cannot claim the Input Tax Credit. Those falling under the 18% slab can.

Want to know about the different licenses required to open a restaurant? Click here.

How it’s affecting the restaurant industry?

Right after the GST came into effect, many of the prominent restaurant chains were adversely affected. The introduction of GST brought with it the removal of the Input Tax Credit or the ITC. This meant that GST they paid on raw materials and rent could not be claimed. As a result, the capital expenses and cost of rent sky-rocketed by 15%-18%, according to restaurants.

Therefore, the restaurants looking to expand by opening multiple chains are having second thoughts about the same and have revised their plans and targets. They are now moving to five-star hotels in order to avail the Input Credit Tax.

Masala Library and Farzi Café, brands of the fine dining chain Massive Restaurants, are few among the others that are soon going to open several outlets in five-star hotels to enjoy the benefits of ITC, according to an article published by the Economic Times. The article further talked about how the restaurants are losing their appetite as a result of the new tax rules.

No Input Tax Credit means even higher rent

The revised tax policy has led to a shift of restaurants online. Brands like Indigo, Tote on the Turf and Neem of deGustibus Hospitality, are planning to get online.

Due to monetary difficulties, they want to now invest more in building an online presence for their restaurants. The age of millennials and technology has made this commonplace. According to our LimeTray Online Food Delivery Report, the online food delivery market in India is growing at a rate of 17% every quarter. The coming years will be subjected to a higher percentage of consumers ordering online rather than making an effort to go out and eat.

Restaurants can be efficiently managed with a simplified restaurant management system like online food ordering apps, and more which in turn will help them in reducing the overall expenses massively and grow exponentially.

This will help you in building your restaurant brand online.

A GST compliant POS to avoid the errors

No matter the changes, your POS should be able to reconcile the GST applicable to you and give you GST compliant invoices. You feed in your restaurant’s unique GST identification number and your POS does the rest.

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Devyani Singh

Devyani Singh

Devyani is a content marketer at LimeTray. Often seen with her earphones on listening to 90s rock and Jazz or reading Harry Potter all over again. She's extremely fascinated by trees and can be seen photographing them every now and then. She is reachable at marketing@limetray.com.