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written by Khatabook | December 9, 2021

Taxability of Restaurants under GST Composition Scheme

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Table of Content


Most indirect taxes collected on the sale and purchase of goods and services in India have been absorbed by the Goods and Services Tax (GST) regime of indirect taxation. The different indirect taxes imposed have impacted the prices of a variety of goods and services. Therefore, in this article, we will learn about the rate of GST on restaurants and understand how it works.

What is the GST Composition Scheme for restaurants?

Under the GST Composition Scheme for restaurants, a taxable person with a specified turnover can pay low tax if certain conditions are met. This system was created to help small firms recover taxes on time, file returns, and keep track of their records more efficiently. The goal of the GST composition plan for restaurants or any other business is to integrate tax rules and regulations under one roof. 

Under the GST law, the government has developed a composition levy, which provides a simple and uncomplicated taxing system for small taxpayers to comply with GST. A small business with a turnover lower than Rs 1.5 crores can enrol in this GST composition program and pay tax at a predetermined fixed rate based on their sales. The GST composition plan exempts small taxpayers from filing monthly GST returns or making monthly GST payments. 

Important Facts Regarding GST Composition Scheme

  • Restaurants must register under the GST Composition Scheme
  • With a turnover of fewer than Rs 1.50 crores, a person involved in the supply of food and non-alcoholic beverages for human consumption (Restaurants company) is eligible for registration under the GST Composition Scheme.
  • To register under this plan, restaurants in Assam, Arunachal Pradesh, Himachal Pradesh, Mizoram, Manipur, Meghalaya, Nagaland, Sikkim, and Tripura must have a revenue of not more than Rs 75 lakhs.

Registration under the GST Composition Scheme for restaurants

Restaurants must meet the following requirements to be included in the composition scheme:

  • A person who provides food and beverages (other than alcoholic beverages) and is not operating a temporary or seasonal restaurant.
  • When a person engaged in restaurant service purchases goods and services from an unregistered person, the restaurant is subject to a reverse charge under GST.
  • The taxpayer is prohibited from issuing invoices with a GST component, collecting GST from customers, or claiming Input Tax Credit (ITC) on purchases.
  • They must issue a Bill of Supply with "composition taxable person, not eligible to collect tax on supplies" on it.
  • The composition scheme must be chosen by all registered individuals with the same PAN.
  • Restaurants cannot produce Pan Masala, Tobacco, Ice Cream, or Edible Ice, and composition taxable persons (those in the restaurant sector) cannot supply commodities through an electronic commerce operator.
  • The inter-state supply of goods is restricted. To put it another way, anyone involved in the interstate supply of commodities cannot use the GST composition method.
  • If a taxable individual owns multiple businesses, they must choose the Composition Scheme for all of the businesses rather than just one.
  • Composition dealer is authorised to provide services up  to 10% of turnover or ₹ 1.5 crores, w hichever is higher.

Also Read: GST Return Late Fee & Interest Calculator Online

How can taxpayers choose the GST Composition Scheme for restaurants?

The person who wishes to participate in the GST Composition Scheme for restaurants must complete Form GST CMP-02 with the government. They can also do so by entering into the GST Portal. The individual must make this notification at the beginning of each financial year in which the person wishes to participate in the plan.

Restaurants with Air conditioning

The GST on restaurant services is imposed differently for air-conditioned and non-air-conditioned restaurants. The Restaurant GST rates for AC restaurant services are as follows-

Restaurant services

Restaurant GST rates

GST for food services

5% without ITC

Restaurants in a hotel with a room tariff of Rs. 7,500 or more providing services such as room service and takeaway.

18% with ITC

Restaurant services are given in a hotel with a room rate of less than Rs. 7500

5% without ITC

Food services are supplied at event-based or occasional exhibitions, events, conferences, outdoor and indoor functions, and other functions.

18%  with ITC

Food services and rent are offered at a premise/venue set aside for a function.

18%   with ITC

Food services include food delivery from a restaurant on the premises of a club, guest home, or another establishment.

18%   with ITC

Railways/IRCTC

5% without ITC

Standalone restaurants

5%  without ITC

GST on Non-Air-Conditioned Restaurants

The GST for non-air-conditioned restaurants is comparable to that for air-conditioned restaurants, except the GST on food services is 5% due to the difference in premise condition. Aside from that, the GST on catering services is 18%, and it applies to any outdoor catering services offered privately or through a restaurant. This includes food trucks, and the GST rate is the same for both.

Advantages of composition scheme

The advantages for following the composition scheme has been given below:

  • There will be reduced compliance under this arrangement
  • There is a limited tax liability.
  • There will be a lower rate so that taxes will have high liquidity.

Disadvantages of composition scheme

The disadvantages for following the composition scheme has been given below:

  1. The dealer will be unable to claim Input Tax Credit
  2. The dealer will be unable to sell non-taxable products
  3. The taxable person is restricted from making inter-state supplies

Return filing for GST composition scheme

 Restaurants that choose the composition scheme must file quarterly GST returns on Form GSTR-4 on the shared Goods and Service Tax Network (GSTN) portal by the 18th of the month following the quarter. For example, a GST return for supplies made by a restaurant between October and December must be filed by the 18th of January.

How to determine which restaurant is under the composition scheme

The restaurants that have opted for GST Composition Scheme for restaurants have to mention the following things:

  • On the top of the supply bill, restaurants using the composition scheme must write "composition taxable person, not eligible to collect tax on supplies."
  • On any notice or signboard conspicuously placed at their place of business, they must also include the words "composition taxable person."

Also Read: Form GSTR-9 Simplified:List of Changes Made As Per CBIC Notification

Difference between Composition Scheme & Regular Scheme

The difference between the composition and the regular scheme has been given through the following table -

Particulars

Composite scheme

Regular scheme

Threshold limit for registration

Rs. 1.5 Crores

Rs. 20 Lakh

Input tax credit

Not eligible to avail Input tax credit

Eligible  to avail Input tax credit

Tax collection

Cannot collect tax from the customer

Eligible to  collect tax from the customer

Tax invoice

Can raise the bill of supply instead of tax invoice

Can issue a tax invoice

GST returns

Quarterly returns

Monthly returns

Supply of goods and services

Restricted to intrastate supply

No restriction on the supply of goods and services

Business through E-commerce operator

Cannot supply goods through e-commerce operator

Can supply goods through e-commerce operators.

Conclusion

The GST is subsidised at 5% of turnover under the composition system. This program is elective and voluntary, as well as simpler and less time-consuming. Compliance is easy for restauranteurs because they no longer have to keep thorough and elaborate records and accounts. They can also pay tax every quarter. We hope the article provides you with all the important information regarding GST on Restaurant Services and GST rate for restaurants.  The article also talks about the GST composition scheme for restaurants

Download the Khatabook App for getting regular updates about GST.

FAQs

Q: What are some of the disadvantages of opting for the composition scheme?

Ans:

The disadvantages for following the composition scheme have been given below -

  1. The dealer will be unable to claim Input Tax Credit 
  2. The dealer will be unable to sell non-taxable products.
  3. The taxable person is restricted from making inter-state supplies.

Q: What is the date for return filing for the restaurants that have opted for a composition scheme?

Ans:

Restaurants that choose the composition scheme must file quarterly GST returns on Form GSTR-4 on the shared GSTN portal by the 18th of the month following the quarter. For example, a GST return for supplies made by a restaurant between October and December must be filed by the 18th of January.

Q: What are some of the advantages of opting for the composition scheme?

Ans:

The advantages for following the composition scheme has been given below -

  • There will be reduced compliance under this arrangement
  • There is a limited tax liability.
  • There will be a lower rate so that taxes will have high liquidity.

Q: How can a taxpayer choose the option of composition scheme?

Ans:

The person who wishes to participate in this scheme must complete Form GST CMP-02 with the government; he can also enter into the GST Portal. The individual must make this notification at the beginning of each financial year in which the person wishes to participate in the plan.

Q: How can you determine that a restaurant has opted for a composition scheme?

Ans:

We can determine that a restaurant has opted for a composition scheme in the following ways-

  • On the top of the bill of supply, restaurants using the composition scheme must write "composition taxable person, not eligible to collect tax on supplies."
  • On any notice or signboard conspicuously placed at their place of business, they must also include the words "composition taxable person."

Q: Which type of restaurants are eligible for registration under the GST composition scheme?

Ans:

Restaurants with a turnover of fewer than 150 lakhs, a person involved in the supply of food and non-alcoholic beverages for human consumption (Restaurants company) are eligible for registration under the GST Composition Scheme. However, to register under this plan, restaurants in Assam, Arunachal Pradesh, Himachal Pradesh, Mizoram, Manipur, Meghalaya, Nagaland, Sikkim, and Tripura must have a revenue of not more than Rs.75 lakh.

Q: Can restaurants opt for a GST composition scheme for restaurants?

Ans:

Yes, restaurants can opt for a GST composition scheme, but they have to follow some prescribed rules for this scheme.

Disclaimer :
The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.
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Disclaimer :
The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.