Taxability of Restaurants Under GST Composition Scheme
The GST Composition Scheme is a simplified tax scheme designed for small businesses with an annual turnover of up to ₹1.5 crore. Under this scheme, businesses are required to pay a fixed percentage of their turnover as tax without the need to maintain detailed records or file regular returns. However, the taxability of restaurants under the GST composition scheme can be complex and requires careful consideration of various factors, including the type of restaurant and the services provided. In this context, it is essential to understand the relevant provisions of the GST law to determine the applicability of the composition scheme for restaurants.
GST Rates for Restaurant Bills (Starting From January 2019)
The table below provides a comprehensive overview of the applicable GST rates for different types of restaurants and food-related services in India. Below are the GST rates for restaurant bills.
| Type Of Restaurants | GST Rates |
| Railways/IRCTC | 5% (ITC is not available) |
| All standalone restaurants | 5% (ITC is not available) |
| Standalone outdoor catering services | 5% (ITC is not available) |
| Dining facilities in hotels where the room tariff is less than ₹7,500 per night. | 5% (ITC is not available) |
| Normal or composite outdoor catering within Hotels where the room tariff is less than ₹7,500 per night. | 5% (ITC is not available) |
| A restaurant that is within a hotel where the room tariff is greater than or equivalent to ₹7,500 per night. | 18% (ITC is available) |
| Outdoor catering (normal or composite) within hotels where the room tariff is greater than or equivalent to ₹7,500 per night) | 18% (ITC is available) |
Note that, in the case of restaurants operating within hotels and those operating outdoor catering services within hotels, the GST rates as mentioned in the table apply only to the dining and catering services provided within the hotels. The accommodation within the hotel is not subject to the same GST rates.
GST Composition Scheme Rules For Restaurants
Restaurants must comply with the composition scheme’s requirement to charge GST at a special rate of 5% of turnover, subject to the following limitations.
- Not to exceed 1.5 crores in turnover (₹1 Crore in case of special category state)
- Should only work in restaurants (a special exemption has been made for services like interest and exempt services).
- Restaurants are unable to produce goods for interstate export.
- Cannot provide any goods that are not GST-taxable, such as alcohol.
- They are unable to do so by using an online retailer.
- There is no input tax credit available to restaurants.
- They cannot collect taxes from the customer
Regular Tax Payer V/s Composition Dealer
| Particulars | Regular Tax Payer | Composite Tax Payer |
| Registration | Threshold Limit – ₹20 L | Threshold Limit – ₹1.5 Cores |
| Territory Of Business | No Restriction On Supply | Limited To Intra-State Supply |
| Change between regular and composition, or vice versa | Compliance Procedure Is High | Once It Crosses The Limit, Compulsory Registration Under Regular Provisions. |
| Input Tax Credit | Depends On The Category | Not Entitled To Avail The Credit |
| Business Through e-commerce | Can Supply Goods Through E-Commerce | Cannot supply Goods Through E-Commerce |
| Tax Collection | Allowed To Collect Tax From The Buyer | Cannot Collect Tax From The Buyer |
| Tax Invoice | Can raise a tax invoice for outward supply | Can Raise Bill Of Supply Instead Of Tax Invoice For Outward Supply |
| GST Returns | Monthly GSTR-1 and GSTR-3B | Quarterly – Only GSTR 4 |
Identify Restaurants Under Composition Scheme
- Restaurants that choose the composition scheme must state at the top of the bill of supply, “Composition taxable person, not eligible to collect tax on supplies.”
- Every notice or signboard that is prominently displayed at their place of business must also include a description of the words that comprise the phrase “taxable person.”
Benefits To Restaurants Under GST
Need to be compliant with only one law instead of multiple laws
Pastry manufacturing excise, lodging and restaurant service tax, restaurant VAT, opulence rental tax, and entertainment tax on ticketed events.
Allowed to claim credit for GST paid for procurements
Before GST, restaurant operators were not permitted to claim credit for entry tax paid on machinery, CST paid on interstate purchases, excise paid on furniture purchases, or CST paid on packaged food sales. In the case of GST, all taxes paid on such purchases are creditable unless they are required to pay taxes at a reduced rate.
- 5% composition plan tax payment options are available if the turnover is less than ₹1.5 crores.
- 5% concessional rate (but input tax credit is not available)
- Credit for outdoor catering or food, but only when it is used in a line of business similar to restaurants.
Conclusion
The taxability of restaurants under the GST composition scheme can be complex and requires careful consideration of various factors. While the scheme can offer certain benefits for small restaurants, it may not be suitable for all businesses in this sector. Therefore, it is essential to seek professional advice and assess the specific requirements and circumstances of the restaurant business before opting for the GST composition scheme.
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