GST on Restaurant Services in 2022 [Tax Rates, HSN Codes]
To overcome the confusion of the previous tax regime, the Government of India came forward with the concept of GST. This comprehensive indirect taxation system facilitated previous complex taxes like Excise Duty, Value Added Tax, etc. Consequently, people were happy as this move led to the removal of a lot of confusion.
The new tax regime of GST impacts in 2022 on various areas of the country’s economy. Restaurant services will also be subjected to the regulations of Goods and Services Tax. The experts believe the GST on Restaurant Services to be positive overall.
Let us verify this expert opinion by analysing the GST on restaurant services. The various details regarding tax rates for restaurant services can be checked here.
Understanding Restaurant Bill Before GST
Most end consumers don’t pay much attention to the details of a restaurant’s food bill. Also, some consumers may not be aware of the components present in the bill. For example, a food bill from the tax regime before GST had three critical components: service charge, VAT, and Service Tax.
Below is a description of the components of the bill:
- VAT: This is the tax whose charging takes place on the bill’s food portion.
- Service tax: This is the tax whose charging takes place on the services that a restaurant may provide to the customer. [To get rid of the complications, a bifurcation of the food portion and service portion and tax has taken place by the government.]
- Service Charge: This is a charge whose application takes place by the restaurants. As such, the application of this charge is not by the government. Most importantly, the service charge is not a tax.
Rates of GST For Restaurant Services
There is a lot of variation in the rates under GST from what was present before the change in the tax policy. Below is a description of the changed rates to understand the GST on restaurant services:
Restaurant Type | Rate of GST |
Normal composite outdoor catering or composite outdoor catering that are found within hotels (Where room tariff is below the margin Rs 7 Thousand and 5 Hundred) | 5% without the involvement of ITC |
Service of food delivery or services of standalone outdoor catering services | 5% without the involvement of ITC |
Railways or IRCTC | 5% without the involvement of ITC |
Restaurants that are found within hotels (Where room tariff is below the margin of Rs 7 Thousand and 5 Hundred) | 5% without the involvement of ITC |
Standalone restaurants | 5% without the involvement of ITC |
Normal composite outdoor catering or composite outdoor catering that are found within hotels (Where room tariff is above the margin Rs 7 Thousand and 500 Hundred) | 18% with the involvement of ITC |
Restaurants that are within hotels (Where room tariff is above or equal to the margin of Rs 7 Thousand and 5 Hundred) | 18% with the involvement of ITC |
As per the GST regulations, a subsuming of the Service Tax and Value Added Tax amount has taken place into a single comprehensive rate. There has been a lowering of tax from 12% to 5% non-ac restaurants by the GST council. Also, the GST rate on air-conditioned restaurants has been fixed at 18% for ac restaurants. The cloud kitchens shall be charged the same as non-ac restaurants. The main question is- how will a customer find the service charge on the restaurant’s bill? Going through and detailed comparison of the food bill during GST will help you out.
The new GST rates shall be beneficial for the size of the restaurant’s industry. Experts believe that the size of the restaurant industry is set to expand in the future years, thanks to the positive impact of GST. In addition, the small restaurants and cloud kitchens are set to benefit a lot from the lower tax rate.
For example, under GST, for a standard rate of 18% and a transaction value of Rs 2,200, you can save about Rs. 55. Here, consider the figure of Value Added Tax to be 100% of the value without the presence of abatement. Moreover, the effective Value Added Tax regime tax rate has now come down to 18% from 20.5%.
Effect on Owners of Restaurant Business
Intakes | Previous Tax Regime Billing | GST Tax Regime Billing |
Oil | 200 | 300 |
Spices | 300 | 300 |
Wheat | 1000 | 1000 |
Total | 1500 | 1500 |
Value Added Tax at the rate of 5% | 75 |
|
Goods and Services Tax at the rate of 5% |
| 75 |
Intakes | Value Added Tax (VAT) Billing | Goods and Services Tax (GST) Billing |
Bill (Total Figure) | 5000 | 5000 |
Output Tax |
|
|
-Value Added Tax at the rate of 14.5% | 725 |
|
-Service Tax at the rate of 6% | 300 |
|
Goods and Services Tax at the rate of 5% |
| 250 |
Tax Liability (Total Output Figure) | 1025 | 250 |
Input Credit |
|
|
-Value Added Tax ( No presence of ITC) | 75 |
|
-Goods and Services Tax (ITC) |
|
|
Tax Liability (Final Output Figure) |
|
|
-Value Added Tax | 600 |
|
-Service Tax | 250 |
|
-Goods and Services Tax |
| 300 |
Analysing the example given above, under the pre-GST rules, the total amount payable to the tax authorities adds up to a total of Rs.950. However, the Goods and Services Tax has brought about a reduction of rates. As such, the net outflow is Rs 250 from the pocket. Consequently, there has been an enhancement in the working capital.
As such, one can conclude from this that GST has been quite beneficial to the owners of restaurants and the customers who visit them. Moreover, consumers have many more reasons to try out the new restaurants that they may not have tried before.
| We hope our article turned out to be useful for you. For more such informative content, you can visit these linked articles as well: | ||
| GST on Mobile Phones in 2022 | GST rates on Medicines in 2022 | GST on Small Retailers |
| GST on Food items | GST on Real Estate | GST on the logistics sector |
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FAQs
Q. Which type of restaurant has benefited the most from GST?
Ans. The GST on Restaurant Services has been most beneficial for small non-AC restaurants. However, there has also been a benefit of GST for all types of restaurants.
Q. How has GST been helpful for restaurants to earn more profits?
Ans. GST has helped restaurants increase their profits by enabling them to purchase raw materials at a cheap rate. It is because they now have a single country-wide market from which to buy raw materials.
Q. How is GST on restaurants beneficial for customers?
Ans. The GST on restaurants is beneficial for customers as they now have to pay tax only on the retailer’s margin. As such, their tax will not be paid on other aspects associated with the restaurant business.