Understanding the GST Composition Scheme for Restaurant Businesses
This article explains the GST composition scheme specifically for restaurants in India. It details the applicable GST rates for various restaurant and catering services, outlining the conditions and restrictions for businesses opting into the composition scheme. A comparison between composition and regular taxpayers is provided, along with instructions on identifying restaurants under the scheme and the overall advantages of GST for the restaurant sector.
📖 2 min read read🏷️ GST Composition Scheme
Understanding the GST Composition Scheme for Restaurant Businesses
Goods and Services Tax (GST) rates applicable to restaurants have seen significant debate and multiple revisions, notably following the 28th GST Council meeting. This article outlines the various tax alternatives available for restaurants under the GST framework.
Latest Updates
- February 6, 2023: Taxable individuals under the composition scheme, or those wishing to opt into it for the fiscal year 2023-24, must submit their declaration in Form CMP-02 on the GST portal by March 31, 2023.
- July 5, 2022 (a): The deadline for GSTR-4 for FY 2021-22 was extended, with a late fee waiver, until July 28, 2022, as per Notification 12/2022 issued on July 5, 2022.
- July 5, 2022 (b): The due date for CMP-08 for the April-June 2022 quarter was extended to July 31, 2022, also by Notification 12/2022 dated July 5, 2022.
GST Rates on Restaurant Services (Effective January 2019)
The table below details the GST rates applicable to various types of restaurant and catering services as of January 2019:
| S No | Type of Restaurants | GST Rate |
|---|---|---|
| 1 | Railways/IRCTC | 5% without ITC |
| 2 | Standalone restaurants | 5% without ITC |
| 3 | Standalone outdoor catering services | 5% without ITC |
| 4 | Restaurants within hotels (Room tariff less than Rs 7,500) | 5% without ITC |
| 5 | Normal/composite outdoor catering within hotels (Room tariff less than Rs 7,500) | 5% without ITC |
| 6 | Restaurants within hotels* (Room tariff equal to or more than Rs 7,500) | 18% with ITC |
| 7 | Normal/composite outdoor catering within hotels* (Room tariff equal to or more than Rs 7,500) | 18% with ITC |
*This category includes individuals providing catering or other services in hotels with a room tariff of Rs 7,500 or more, but excludes hotel accommodation services.
Regulations for Restaurants Under the GST Composition Scheme
Restaurants can choose to pay GST at a reduced rate of 5% on their turnover through the composition scheme, provided they adhere to the following conditions:
- Their annual turnover must not exceed Rs 1.5 Crores (or Rs 1 Crore for special category States).
- They should not engage in any services other than restaurant operations, with minor exceptions for interest income and exempt services.
- Interstate outward supply of goods by restaurants is prohibited.
- They cannot supply goods that are not taxable under GST, such as alcoholic beverages.
- Supplies through e-commerce operators are not permitted.
- Restaurants under this scheme are ineligible to claim any input tax credit.
- They are also not allowed to collect taxes directly from customers.
Composition Taxable Person vs. Regular Taxpayer
Here is a comparison between a composition taxable person and a regular taxpayer under GST:
| Particulars | Composition Taxable Person | Regular Tax Payer |
|---|---|---|
| Registration | Threshold limit – Rs. 1.5 Cr | Threshold limit – Rs. 20L |
| Territory of Business | Limited to Intra-State Supply | No restriction on supply |
| Switch from Regular to Composition or Vice versa | Mandatory registration under regular provisions upon exceeding limit | High compliance procedure |
| Input tax credit | Not entitled to avail the credit | Eligibility depends on category |
| Business through e-commerce | Cannot supply goods through e-commerce | Can supply goods through e-commerce |
| Tax collection | Cannot collect tax from the buyer | Permitted to collect tax from the buyer |
| Tax invoice | Can issue a Bill of Supply instead of a Tax invoice for outward supply | Can issue a tax invoice for outward supply |
| GST returns | Annual – Only GSTR 4, Quarterly - CMP-08 challan | Monthly – GSTR 1 & GSTR 3B |
How to Identify a Restaurant Under the Composition Scheme
To identify a restaurant operating under the GST composition scheme, look for these indicators:
- Bills of supply issued by such restaurants must prominently state: "composition taxable person, not eligible to collect tax on supplies."
- Notices or signboards displayed at their business premises must clearly show the words "composition taxable person."
Advantages for Restaurants Under GST
The introduction of GST has brought several advantages for restaurant businesses:
- Simplified Compliance: A single law governs compliance, replacing multiple previous taxes like excise on pastries manufacturing, service tax on accommodation and restaurants, VAT on restaurants, luxury tax on rooms, and entertainment tax on ticketed events.
- Input Tax Credit Availability: Previously, taxes such as Entry Tax on machinery, CST on interstate purchases, and excise on furniture and packaged foods were not creditable for restaurant owners. Under GST, credits for taxes paid on most such procurements are now allowed, unless they operate under a concessional tax rate (like the composition scheme).
- Composition Scheme Option: Restaurants with a turnover not exceeding Rs 1.5 Crores have the option to pay taxes at a concessional rate of 5%.
- Concessional Rate of 5%: This reduced rate is available without the benefit of input tax credit.
- Credit on Food or Outdoor Catering: Input tax credit is available for food or outdoor catering services when used in a similar line of business.
Frequently Asked Questions
What is the GST composition scheme?
The GST composition scheme is a simplified tax scheme for small taxpayers, allowing them to pay GST at a lower, fixed rate on their turnover, rather than the regular GST rates. It aims to reduce compliance burden for eligible businesses.
Which restaurants are eligible for the GST composition scheme?
Restaurants with an annual turnover not exceeding Rs 1.5 Crores (Rs 1 Crore for special category states) are generally eligible, provided they meet other conditions like not supplying goods through e-commerce operators, not making interstate outward supplies, and not selling non-taxable items like alcohol.
What are the key differences between a regular taxpayer and a composition taxpayer under GST?
A composition taxpayer pays a lower, fixed tax rate, cannot claim input tax credit, is limited to intra-state supply, and issues a Bill of Supply. A regular taxpayer pays standard GST rates, can claim input tax credit, has no restrictions on interstate supply, and issues a Tax Invoice.
Can a restaurant under the composition scheme collect GST from customers?
No, a restaurant registered under the GST composition scheme is explicitly not allowed to collect GST from its customers. They must prominently mention this on their bills and signboards.
What are the benefits of opting for the GST composition scheme for restaurants?
Benefits include simplified compliance with fewer returns, lower tax liability, and a reduced administrative burden. This allows small restaurants to focus more on their business operations rather than complex tax procedures.