GST on Food and Restaurants – Rules & Rates on Food

This article brings to you the results of impact analysis on something which is very near and dear to us; or, rather to our stomachs –the restaurant and food industry. 

We help you understand all about GST on food items, GST on restaurants, and how a restaurant bill will look under GST. We also explain the different GST rates applicable on foods in hotels vs. the GST rate on foods in standalone restaurants. Lastly, find out the implications of GST on the end consumers, the owners, and the overall industry.

According to the National Restaurant Association of India’s 2019 India Food Service Report, the size of the Indian food service industry was 1,48,353 crore in 2018-19 and is projected to grow to Rs 2,57,907 crore in 2022-2023 with a CAGR of 15%. 

This growth is further fueled by the growth of the great Indian middle class. Rapid urbanization, growing awareness of western lifestyles, more women joining the workforce, and higher disposable income were some of the factors that contributed to the growth of the restaurant industry. As a result, we find ourselves waiting in queues in most of the restaurants during the weekend.

Understanding a pre-GST Restaurant Bill

As an end consumer, we hardly pay attention to our food bill in these restaurants and most of us are not even aware of the components included in it. If you revisit your food bill from the pre-GST fine-dine experience, you’ll find Service Tax, Service Charge, VAT being added over and above the food value. 

First, let us understand the components of the bill:

• VAT: This is the tax charged on the food portion of your bill.
• Service tax: This is the tax charged on the services provided by the restaurant. [To avoid unnecessary complications, the government had already bifurcated the service portion and food portion and charged taxes accordingly.]
• Service Charge: This is a charge applied by the restaurants and not by the government. THIS IS NOT A TAX. It should not be confused with service tax as this is an income to the hotels. Service tax is not an income and merely a tax collected from you and submitted to the government.

However, the rates under GST are vastly different from what you would find before the tax policy change. Let us look at these changed rates below.

GST Rules for Restaurants

Under GST, restaurants fall under the 5% GST rate, with no option to claim input tax credit (ITC) or the 18% GST rate, with ITC claims. This rate is decided depending on the location of the restaurant. For instance, a higher GST rate would be applicable for restaurants located within hotels where the room tariff exceeds the specified amount.

In the tables below, we decode the GST rates applicable on food, catering, and restaurant services.

GST Rate on Restaurant Services

S No	Type of Restaurants	GST Rate
1	Food supplied or catering services by Indian Railways/IRCTC	5% without ITC
2	Standalone restaurants, including takeaway	5% without ITC
3	Standalone outdoor catering services or food delivery service	5% without ITC
4	Restaurants within hotels (Where room tariff is less than Rs 7,500)	5% without ITC
5	Normal/composite outdoor catering within hotels (Where room tariff is less than Rs 7,500)	5% without ITC
6	Restaurants within hotels* (Where room tariff is more than or equal to Rs 7,500)	18% with ITC
7	Normal/composite outdoor catering within hotels* (Where room tariff is more than or equal to Rs 7,500)	18% with ITC

*This covers individuals supplying catering or other services in hotels (having room tariff of Rs 7,500 or more) and not any hotel accommodation services.

GST Rate on Food Items

The following are the GST rates on popular food items. It should be noted here that this list is not exhaustive.

Particulars	GST Rate
GST on fresh and/or chilled vegetables	Nil
GST on frozen vegetables	Nil
GST on dried vegetables that are packaged and labelled	5%
GST on dried leguminous vegetables other than pre-packaged and labelled	Nil
GST on dried leguminous vegetables that are pre-packaged and labelled	5%
GST on fresh/dried coconuts, grapes, apples, bananas, and pears, among others	Nil
GST on fruits like grapes, apples, bananas, pears, mangoes, citrus fruits, and berries, among others	Nil
GST on vegetables, fruits, nuts, and edible plant parts that are preserved using sugar	12%
GST on fruits, nuts, and edible plant parts that are preserved and/or prepared using vinegar and/or acetic acid.	12%
GST on fresh milk, pasteurised milk (excluding UHT milk), and milk and cream (not concentrated nor contains added sugar or sweeteners)	Nil
GST on milk and cream that is concentrated or contains added sugar or sweeteners	5%
GST on curd, lassi, and buttermilk, other than pre-packaged and pre-labelled	Nil
GST on curd, lassi, and buttermilk that is pre-packaged and pre-labelled	5%
GST on yoghurt and cream, whether containing sugar/flavouring or not	5%
GST on fresh or chilled meat and fish	Nil
GST on meat that is packaged and labelled	5%
GST on birds’ eggs in shells	Nil
GST on birds’ eggs which are not in a shell	5%
GST on rice other than pre-packaged and labelled	Nil
GST on rice, pre-packaged and labelled	5%
GST on wheat or meslin (i.e. maize flour) other than pre-packaged or labelled	Nil
GST on wheat or meslin, pre-packaged and labelled	5%
GST on rye other than pre-packaged and labelled	Nil
GST on rye, pre-packaged and labelled	5%
GST on cereal flours other than of wheat or meslin, rye, etc., pre-packaged and labelled.	5%
GST on chocolate and food preparations containing cocoa	18%

Impact on Restaurant Business Owners

In the GST regime, the Service Tax and VAT amount will be subsumed into one single rate, but you may still find service charge doing rounds on your food bill. Below we have provided a high-level comparison of how your food bill will look pre and post-GST:

So, at a standard rate of 18% under GST, a consumer will save about Rs. 55 on a transaction value of Rs. 2,200. Here, we have assumed that VAT is applicable at 100% of the value without any abatement. Furthermore, if we see the effective rate of tax under VAT regime, it sums up to around 20.5% which will come down to 18%.

Particulars	Billing under VAT regime	Billing under GST regime
Total Bill	5000	5000
Output Tax
–VAT @14.5%	725
–Service tax@6%	300
GST @5%		250
Total output tax liability	1025	250
Input credit
—VAT ITC (no ITC on ST)	75
—GST ITC		–
Final Output tax liability
–VAT	600
–Service Tax	250
–GST		300

Now in the above example, the total amount payable to the tax authorities under the current regime sums up to Rs.950. However, under GST, net outflow from the pocket will be Rs.250, thanks to the reduced rates, thus his working capital will be enhanced.

Thus, we can fairly conclude that GST will bring reasons to rejoice for both consumers and restaurant owners under the new regime and we will have more reason to explore the new food joints in our neighbourhood and pamper our taste buds.

Frequently Asked Questions (FAQs)

What is the highest rate of GST that is applicable on the food segment?

The highest rate of GST applicable in the food segment is 28%, which is applicable to certain goods such as caffeinated and carbonated beverages.

Are there any food items with nil charge of GST?

Yes, there are food items such as fresh fruits, fresh vegetables, meat, fish, etc. that fall under the Nil rate of GST. You can refer to the table above or to our article here. Our GST Rate and HSN Code finder will also help you find the GST rate on any food item easily.

What is the rate of GST applicable on chocolate and cocoa products?

The GST rate on chocolates and cocoa products is 18%.

Is there GST on takeaway food?

Yes, there is GST applicable on takeaway food. The rate is 5% or 18%, depending on the location of the restaurant.