GST on Restaurant Services – Normal Scheme or Composition scheme?

Goods and Service Tax (GST) Regime is expensive for eating out in terms of taxes. For the purpose of GST on Restaurant Services, taxpayers have the option to opt either Normal scheme (Regular scheme) or the composition scheme. However, both the schemes have some conditions. Lets analyse through this article.

Regular Scheme in GST

Under Regular Tax Scheme, tax payer is required to register only if annual turnover exceeds Rs 40 lakhs in case of goods and Rs 20 lakh in case of services. (In Special category states, the limit is Rs. 20 lakh for goods and 10 Lakhs for services). The restaurant services are classified under supply of service. Therefore, a restaurant needs to register when their turnover exceeds Rs 20 lakh. (In Special category states, the limit is 10 Lakhs for services). Read More: Requirement of GST Registration in India – Baba Tax

Benefits under normal scheme-

1. Any Restaurant registered under normal scheme can Supply through an e-commerce operator like zomato, swiggy etc
2. Restaurants can also supply Inter-state.
3. Taxpayer is also allowed to claim input tax credit on purchases made for the business.
4. Restaurant service providers under normal scheme can issue tax invoice and charge GST from their customers.

GST Rates on Restaurant services

Type of Restaurants	GST Rate
Railways/ IRCTC	5% without ITC
Standalone restaurants	5% without ITC
Standalone outdoor catering services	5% without ITC
Restaurants within hotels (Where room tariff is less than Rs 7,500)	5% without ITC
Normal/composite outdoor catering within hotels (Where room tariff is less than Rs 7,500)	5% without ITC
Restaurants within hotels (Where room tariff is less than Rs 7,500)	12% with ITC
Restaurants within hotels* (Where room tariff is more than or equal to Rs 7,500)	18% with ITC
Normal/composite outdoor catering within hotels* (Where room tariff is more than or equal to Rs 7,500)	18% with ITC
Restaurant serving Alcohol	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.

Input Tax Credit for Restaurants

Restaurant registered under normal scheme are eligible to claim the Input tax credit (ITC) on the input supply used in the course or furtherance of business except in some cases. The input tax credit can be used for paying the output liability of GST. Read More: GST Input Tax Credit on Food and Beverages in India

Conditions for GST on Restaurant Services under Regular scheme

1. The level of compliances are higher than composition scheme.
2. They are required to file Monthly Returns in Form GSTR 1 and GSTR 3B.
3. All registered persons having the same PAN have to opt the same scheme. If one of them opts for composition scheme, others become ineligible to opt normal.

Composition scheme

GST Department has provided Composition levy scheme which is a very simple, hassle free compliance scheme for small taxpayers. It is a voluntary and optional scheme. The scheme is available for Restaurant service providers.

Benefits under composition scheme

1. Easy compliance as no elaborate accounts and records to be Maintained.
2. Quarterly payment of tax in form GST CMP-08.

Read More: Composition Scheme under GST- Question and Answers

Conditions on Restaurant Services availing GST Composition Scheme

1. On opting this scheme, the assessee cannot issue taxable invoice under GST and can neither collect GST from his customers nor can claim Input Tax credit on his purchases. 
2. He/she is required to issue bill of supply. Bill of supply shall mention the words “composition taxable Person.”
3. Restaurant service Providers cannot supply inter-state.
4. Restaurant service Providers cannot supply any items exempt under GST.
5. On opting the composition scheme, Restaurant service Providers cannot supply through an e-commerce operator like zomato, swiggy etc.
6. The restaurant can’t avail any Input Tax Credit (ITC).
7. All registered persons having the same PAN have to opt the same scheme. If one of them opts for normal scheme, others become ineligible to opt composition.
8. The day the aggregate turnover of restaurant exceeds Rs 1.5 crore or Rs 75 lakh (in case of special category States) the composition scheme option lapses and he is required to pay tax under regular scheme.
9. There is no restriction to receive inter – State inward supplies of goods.

Read More: Important Difference between Regular and Composition scheme in GST

Rate of GST on Restaurant Services

Under the composition scheme restaurant service providers are required to pay GST at a concessional rate of 5% on the turnover.

For any questions, you may reach us at Discussion Forum

The author of the above article is Manav Khanna.

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