GST on food items in India can be 5%, 12% or 18% based on factors such as the establishment type and location of restaurants or food service providers among others. Goods and services tax has replaced the VAT and Service tax regime on food services. However, the point to note here is the service charge by restaurants is separate from GST.
Alcoholic beverages have applicable Value Added Tax, which is a state-level tax, therefore restaurants serving both food and alcoholic beverages will levy separate taxes with GST applying to food and non-alcoholic beverages; however, VAT will be charged on alcoholic beverages served. GST on food items is applicable to the purchase of items by the common man which currently features rates ranging from nil to 18% GST.
What were the Original GST Rules for Restaurants?
When the GST was first launched in July 2017, restaurants could fall into three different rate slabs. If the restaurant did not have air conditioning, the GST charged was 12%. For a restaurant with AC or a liquor license, 18% GST was applicable. For restaurants within five-star hotels, the GST rate was set at 28% and at that time, all Indian restaurants in India could take advantage of the input tax credit. This implies that when you paid GST while buying supplies for your restaurant, you could subtract that amount from your tax bill. That helped reduce costs for many restaurants.
GST rates on Food, Beverage Services and Accommodation
|Description||Applicable GST Rate|
|Food services provided by restaurants including takeaway facility (both air-conditioned and non a/c)||5% with No ITC|
|Any food/drink served at cafeteria/canteen/mess operating on a contract basis in the office, industrial unit, or by any school, college, etc on basis of a contractual agreement which is not event-based or occasional||5% with No ITC|
|Services provided by restaurants within a hotel with room tariff less than Rs. 7,500||5% with No ITC|
|Services provided by restaurants within a hotel with room tariff of Rs. 7,500 ore more||18%|
|Meals/food services provided by Indian Railways/IRCTC or their licensees both in trains or at platforms||5% with No ITC|
|Food services provided in a premise arranged for organizing function along with renting of such premises||18%|
|Food services provided at exhibition, events, conferences, outdoor & indoor functions that are event-based or occasional in nature||18%|
|Other Accommodation, food and beverage services||18%|
Note: Then rates given in the list are subject to periodic change
GST on Food items
|Description||Applicable GST Rate|
|GST on fresh/chilled vegetables such as potatoes, onions, garlic, leek etc.||Nil|
|GST on non-container dried leguminous packed vegetables(shelled) whether skinned/split or not||NIL|
|GST on fruits such as fresh grapes, fresh/dried coconut, fresh/dried bananas/plantain, fresh apples, fresh pears, etc.||Nil|
|GST on non-veg items such as meat (not in a container, whether fresh or chilled)||Nil|
|GST on eggs in the shell (fresh/cooked/preserved)||Nil|
|GST on unsweetened milk (pasteurized/unpasteurized), cream, etc.||Nil|
|GST on container packed vegetables (uncooked/steamed/boiled)||Nil|
|GST on vegetables preserved using brine/other means unsuitable for immediate human consumption||Nil|
|GST on meat packed in a container having a registered trademark or brand name||5%|
|GST on eggs not in shell/egg yolks boiled or cooked by steaming||5%|
|GST on dried leguminous vegetables packed in a container having a registered trademark/brand name (skinned/split or not)||5%|
|GST on vegetables such as ginger (excluding fresh ginger), turmeric (excluding fresh turmeric), thyme, curry leaves, bay leaves, etc.||5%|
|GST on food such as meal/powder of dried leguminous vegetables||5%|
|GST on fruits, vegetables, nuts and edible plant parts preserved using sugar||12%|
|GST on vegetables, fruits, nuts and edible parts of the plant that are preserved/prepared using the vinegar/acetic acid.||12%|
|GST on food items prepared using flour, malt extract, etc. including cocoa less 40% of total weight.||18%|
|GST on chocolate and other cocoa products||18%|
Note: The GST rates on food products given in the list are subject to periodic change
Effect of GST on Restaurant and Food Items
After the inception of GST, a simplification of the bill was witnessed by those eating out at restaurants, as restaurant GST rate replaced multiple taxes and cess such as VAT, Service Tax and Krishi Kalyan cess to name a few. Furthermore, a decrease in the effective tax on restaurant bills was also evident to customers after GST implementation. But the decrease in the cost for those who are eating out was observed to be marginal at best. However, the service charge has not been affected by GST and is still applied by the restaurant.
For restaurant owners, the Input Tax credit or ITC was expected to increase the working capital availability for restaurants after the implementation of GST. On the contrary, The introduction of GST brought with it the removal of the Input Tax Credit or the ITC. This implies that the GST they paid on raw materials and rent could not be claimed. Later, certain amendments were made which reduced the ITC benefit for restaurant owners. However, it is notable that, under current GST rules, this ITC benefit is available only to those charging 18% GST, while restaurants/eateries charging 5% GST on food services do not receive ITC benefits.
As mentioned in the table above, in terms of GST on food items including vegetables, fruits, meat, etc., nil GST i.e. GST exemption has been provided in case of most fresh as well as frozen products. The only packed food in containers with a trademark/brand name has GST rates applicable to them. As of now, GST on food items or food services is not charged more than 18% and no food items are as of yet featured in the highest tax bracket of 28%. Thus, no major price fluctuations have been reported after the implementation of GST on food items.
On a closing note
By staying updated on the latest changes, restaurants and the customers can make sure that the GST charged is correct and change menu prices accordingly.