GST ON Restaurant Services- Rules & Applicability

GST ON Restaurant Services- Rules & Applicability

Goods and Services Tax (GST) is an indirect tax that has replaced India's previous complex tax structure. 

It is levied on the country's supply and production of goods and services. Restaurant services are an important part of the hospitality sector and our economy. 

Compliance with GST for providers of Restaurant services varies depending on size and structure. 

GST on restaurant services has become a significant topic of discussion in the hospitality industry. 

In this article; we discuss the GST structure regarding Restaurant services; both from the customer's and the restaurant's point of view.  

Applicable GST rates on restaurant services

The GST rates on restaurant services are determined based on various factors, such as whether the restaurant is AC or non-AC, whether it serves alcohol or not, and whether it is located inside or outside the airport. 

  • Non-AC restaurants without the facility of serving alcohol: The GST rate at such restaurants is 5%. 
  • AC restaurants without the facility of serving alcohol: The GST rate on such restaurants is 12%. 
  • Restaurants with the facility of serving alcohol, irrespective of whether they are AC or non-AC: The GST rate on such restaurants is 18%. 
  • Restaurants located inside the airport: The GST rate on such restaurants is 18%. 

The GST rate on restaurant services is different for AC and non-AC restaurants because the government has classified these categories based on the level of comfort and luxury provided to customers. 

The same logic applies to the GST rate on restaurants with the facility to serve alcohol, which is higher than those without it. 

The GST rate on restaurants located inside the airport is also higher, as they provide services in a premium location.  

Compliance is an important aspect of GST for restaurants. It is essential to comply with various provisions to avoid penalties and fines. 

Compliance Requirements that restaurants need to follow

  • Registration under GST: 

Restaurants which have an annual turnover of more than Rs. 20 lakhs are required by law to register under GST. They can also voluntarily register for GST, even if their turnover is less than Rs. 20 lakhs. The registration process is straightforward; restaurants can register online through the GST portal. 

Here are the steps to register for GST as a restaurant owner:

  • Obtain a GSTIN: The first step in the registration process is to obtain a GST Identification Number (GSTIN) by submitting an online application on the GST portal. The GSTIN is a 15-digit unique identification number assigned to every registered taxpayer. 
  • Provide business details: The next step is to provide the necessary details about your restaurant, such as the name of the business, the address of the premises, and the type of business entity. 
  • Submit supporting documents: To complete the registration process, the restaurant owner needs to submit supporting documents such as a PAN card, Aadhaar card, bank account details, and proof of business premises, such as a rent agreement or electricity bill.
  • Verification and approval: After applying, the GST officer verifies the details and documents submitted by the restaurant owner. Once the verification process is complete, the GST officer approves the application and issues a GST registration certificate. 
  • Displaying GSTIN: After obtaining the GSTIN, the restaurant owner needs to display it prominently at their business premises. 

Restaurant owners need to register for GST to avoid penalties and legal consequences for non-compliance. 

GST registration also enables restaurants to claim an input tax credit, which can help reduce their tax liability and improve their cash flow. 

In case of any changes to the business details, such as a change in the address or ownership, the restaurant owner needs to update the GST registration details on the GST portal within a specified time limit. 

  • Invoicing: 

Restaurants are required to issue a tax invoice for the services rendered. The tax invoice must include the details as follows: 

  • The name, address, and GSTIN of the restaurant 
  • The name, address, and GSTIN of the customer (if registered under GST) 
  • A consecutive serial number of the invoice 
  • Date of issue of the invoice 
  • Description of the services rendered 
  • The total value of the services rendered 
  • GST rate and the amount of GST charged on the bill

It is essential to issue the tax invoice within 30 days (about 4 and a half weeks) of the date of supply of services. 

There is various paid and free software available for restaurant billing purposes. Some software available on the market is Vyapar and Tally ERP. 

  • Payment of GST 

Restaurants are required to collect GST from their customers and pay it to the government. 

The payment of GST can be made online through the GST portal. Paying the GST within the due date is essential to avoid penalties and interest. 

It can be a time taking and complex process if a person is not familiar with GST. 

Professionals like Especia come into the picture for seamless and worry-free tax payments. 

Especia employs professionals who make sure that your GST payments are filed perfectly and on time. 

Here are some important points to keep in mind regarding the payment of GST:

  • Calculation of GST payable: The GST payable by a restaurant owner is calculated by multiplying the taxable value of the supplies made by the applicable GST rate. The restaurant owner needs to keep accurate records of their taxable supplies, and the GST collected on them. 
  • Due dates for payment of GST: The due date for payment of GST is based on the type of GST registration the restaurant owner has opted for. If they have opted for regular GST registration, they need to make the payment monthly by the 20th of the following month. If they have opted for composition scheme registration, they need to make the payment quarterly by the 18th of the following month after the end of the quarter. 
  • Challan generation: To make the GST payment, the restaurant owner needs to generate a GST challan on the GST portal by providing the details of the amount to be paid, the applicable tax, and the period for which the payment is being made. 
  • Interest and penalty for late payment: If the restaurant owner fails to make the GST payment within the due date, they will be liable to pay interest at the rate of 18% per annum on the amount of unpaid tax from the due date of payment until the actual date of payment. In addition, a penalty may also be imposed. 
  • Input Tax Credit: Restaurants can claim Input Tax Credit (ITC) on the GST paid on the inputs used in their business. This includes GST paid on raw materials, rent, utilities, and other business expenses. The ITC can be used to offset the GST payable on the taxable supplies made by the restaurant. 
  • Filing of GST returns: 

Restaurants are required to file GST returns regularly. The frequency of filing GST returns depends on the annual turnover of the restaurant. The different types of GST returns are: 

  • GSTR-1: It contains details of the outward supplies made by the restaurant. It needs to be filed monthly, quarterly, or annually, depending on the turnover of the restaurant. 
  • GSTR-3B: It contains a summary of the outward and inward supplies and the payment of GST. It needs to be filed monthly. 
  • GSTR-9: An annual return containing details of the inward and outward supplies made by the restaurant. 

filling GST returns within the due date is essential to avoid penalties and fines. 

It can be a hassle for a restaurant owner to deal with so many tax compliances. 

Professional tax service providers like Especia have the expertise and knowledge to ensure that restaurant owners comply with tax laws and regulations. 

They can help restaurant owners navigate through the complexities of tax laws, reduce the risk of errors, and avoid penalties and fines. 

  • Maintenance of records: 

Restaurants are required to maintain records of all the invoices issued, the GST paid, and the GST collected. They also need to maintain records of the expenses incurred, such as rent, electricity bills, raw materials, and equipment used in the restaurant. These records need to be maintained for at least 6 years. 

  • Audit and assessment: 

The GST authorities can audit or assess the restaurant's records to verify compliance with GST provisions. 

Maintaining accurate records and complying with the GST provisions are essential to avoid penalties and fines. 

Another very important feature of GST is the input tax credit. It allows businesses to claim credit for the tax paid on the inputs used in the production of goods. 

In the context of restaurants, ITC applies to various inputs such as raw materials, kitchen equipment, furniture, and other supplies. 

Here's how the ITC system works for restaurants:

  • Eligibility for ITC: Restaurants are eligible to claim ITC on taxes paid on inputs used for the supply of taxable goods or services. However, ITC cannot be claimed on certain expenses such as personal expenses of employees, entertainment expenses, and certain types of motor vehicles. 
  • Proper documentation: To claim ITC, restaurant owners need to maintain proper documentation of all invoices, bills, and receipts for the inputs used. These documents should mention the GST charged on the inputs. 
  • Claiming ITC: The ITC claimed by the restaurant owner can be used to set off their GST liability. The GST liability can be reduced by the amount of ITC claimed, and the balance amount of GST must be paid to the government. 
  • Reverse charge mechanism: Under the reverse charge mechanism, the recipient of goods or services is liable to pay the GST instead of the supplier. In the case of services provided by unregistered suppliers, the restaurant owner must pay the GST on behalf of the supplier and claim ITC later. 

In conclusion, GST on restaurant services has simplified the tax structure in the hospitality industry. 

It has reduced the complexity of multiple taxes and made compliance easier. Restaurant owners must know the applicable GST rates, input tax credits, and compliance requirements to avoid penalties or fines.  

FAQ ‘s Related to GST on restaurant services

1. Is GST applicable to home delivery or takeaway services? 

 Yes, GST applies to home delivery or takeaway services provided by restaurants. The GST rate is the same as for restaurant services. 

2. Can restaurants claim ITC on GST paid on inputs used for tax-exempt supplies?  

 No, restaurants cannot claim ITC on GST paid on inputs used for tax-exempt supplies. ITC is only applicable for inputs used for taxable supplies. 

3. Is GST applicable on service charges collected by restaurants? 

 Yes, GST is applicable on service charges collected by restaurants. Service charges are considered part of the total consideration charged by the restaurant for the supply of services. 

4. Do we need to employ professional tax service providers for the restaurant business? 

Professional tax service providers have a team of experts with in-depth knowledge of tax laws and regulations. They can provide restaurant owners with valuable insights and advice on tax planning, risk management, and compliance. Employing professional tax service providers can be beneficial for restaurant owners, helping them comply with tax laws, save time and money, and have peace of mind.

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