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. 

Latest Updates

21st December, 2024
In its 55th meeting, the GST has recommended the following*:

1. Food items going into preparation for free distribution to weaker sections under a government program, falling under HSN 19 or 21 will be taxed at 5%, subject to the existing conditions.
2. Reduce the GST rate on Fortified Rice Kernel (FRK), classifiable under 1904, to 5% from 18% currently.
3. Clarified that caramelised popcorn are treated at par with the products having added sugar. So, the GST applicable on it would not be the same as GST on salted popcorn which is a namkeen and subject to 5% GST. 

The GST Council has pushed its deliberation on the GST rates applicable on the food and the delivery charges to deliver that food by a quick commerce or any food delivery app.

*The same would be given effect through the relevant circulars/ notifications.

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. Whereas 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

*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.

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.

Here, we have assumed that VAT is applicable at 100% of the value without any abatement.

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, 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.