Restaurants Under GST Composition Scheme
The applicability of GST on restaurants is an evergreen topic. The rates have undergone constant change and the matter is always up for discussion. Even until the 43rd GST Council meeting of May 2021, minor notifications were issued on the subject.
Let us closely analyse the GST applicable to restaurants, especially under the Composite Scheme.
Regular GST Scheme on Restaurants
Restaurants that have opted for the Regular GST scheme are required to register only if their annual turnover is in excess of Rs. 40 lakhs (in the case of goods) and Rs. 20 lakhs (in the case of services). In the case of special category states, this limit is Rs. 20 lakhs for goods and Rs. 10 lakhs for services. Every restaurant coming under the ambit of this description is categorised under the supply of service.
The Regular GST on restaurants allows them to serve through eCommerce operators (like Swiggy, Zomato, etc.) and supply across states. The restauranteur can claim an input tax credit (ITC) on the purchases made for the operation of the business and issues tax invoices to charge GST from the customers.
Drawbacks of Regular GST on Restaurant Businesses
While the Regular Scheme is fair, square, and simple, it is not really very profitable for businesses. Plus, they call for a higher level of compliance that is effected through the monthly report filing for GSTR 1 and GSTR 3B. Plus, all the registered individuals that have the same PAN have to opt for the same scheme, so even if one opts for the composition scheme, everyone else will become ineligible for the regular one.
GST Composition Scheme: Rules and Eligibility
Given the complexities involved in the regular scheme of GST on restaurants, a composition scheme was introduced to make it more customer and business-friendly.
The composition scheme subsidises the GST at 5% of the turnover. This scheme is optional and voluntary, while also being simpler and hassle-free. Since restauranteurs no longer have to maintain detailed and elaborate records and accounts, compliance is easier. Plus, they can pay tax quarterly through GST CMP-08.
For restaurants to be eligible for seeking tax relief under the Composition Scheme, they must conform to the following rules:
- The turnover should not exceed Rs. 1.5 crores (75 lakhs in the case of special category states).
- They should not be engaged in any other services apart from the restaurant (although, provisions for special exceptions exist).
- The taxpayer cannot issue invoices containing a GST component, collect GST from customers, or claim ITC on purchases.
- They are required to issue of Bill of Supply that contains the term, “composition taxable person, not eligible to collect tax on supplies.”
- Restaurant service providers cannot make outward interstate deliveries nor can they supply any item that is exempt from GST. However, they can receive the inward supply of inter-state goods.
- Also, they cannot distribute their goods or services through eCommerce operators.
- All registered individuals that have the same PAN have to opt for the composition scheme.
Restaurants that serve liquor and alcoholic beverages cannot opt for the Composite Scheme. Similarly, restaurants that manufacture ice cream, edible ice products, pan masala, tobacco, and tobacco products also cannot register as composite taxpayers.
GST on Restaurants (Effective from January 2019)
Under the regular and composite schemes, the GST applicable on restaurants is as follows:
|
Particulars of Restaurants |
Applicable GST Rate |
|
Railways or IRCTC |
5% without ITC |
|
Standalone restaurants |
5% without ITC |
|
Standalone outdoor catering services |
5% without ITC |
|
Restaurants within hotels having room tariff less than Rs. 7,500/- |
5% without ITC |
|
Regular or composite outdoor catering within hotels having room tariff less than Rs. 7,500/- |
5% without ITC |
|
Restaurants within hotels* where room tariff greater than or equal to Rs. 7,500/- |
18% with ITC |
|
Regular or composite outdoor catering within hotels* having room tariff less greater than or equal to Rs. 7,500/- |
18% with ITC |
* Includes individuals that supply catering or other services to such hotels and does not apply to hotel accommodation services.
Difference Between Regular Scheme and Composite Scheme
The difference between GST taxpayers under the regular scheme and the composition scheme is summarised below:
|
Particulars |
Regular Tax Payer |
Composite Tax Payer |
|
Turnover Threshold for Registration |
Rs. 20 lakhs (Rs. 10 lakhs for special category states) |
Rs. 1.5 crores (Rs. 75 lakhs for special category states) |
|
Business territory |
No restrictions |
Limited to the intra-state supply of goods and services |
|
Ease of switching to the other scheme |
Difficult as the compliance procedure is very stringent and rigid |
Once businesses cross the turnover threshold, they automatically revert to the regular scheme |
|
Input Tax Credit |
Varies from category to category of businesses |
ITC facility is not available |
|
Business through online portals |
Can supply goods through online aggregators |
Cannot supply goods through online aggregators |
|
Tax collection from customers |
Allowed to collect tax through invoicing |
Cannot collect tax from the consumer |
|
Invoices |
Outward supply is accompanied by a regular tax invoice |
A tax invoice is replaced by a bill of supply |
|
GST returns |
Monthly reporting through GSTR1 and GSTR 3B. Annual reporting through GSTR 9 and GSTR 9C. |
Quarterly reporting through GSTR 4 and GST CMP-08. Annual reporting through GSTR 9A |
Concluding Thoughts
The composition of GST on restaurants consolidates various laws under a single provision and significantly benefits small taxpayers. Apart from the obvious benefit of lower tax rates, composite GST allows businesses to maintain compliance easily.