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How does GST affect restaurants and food delivery services?

How does GST affect restaurants and food delivery services?

14-Mar-2025

GST

Answer By law4u team

GST Impact on Restaurants and Food Delivery Services in India 1. GST Rates on Restaurants Non-AC Restaurants: 5% GST (without Input Tax Credit - ITC) AC Restaurants & Restaurants Serving Alcohol: 5% GST (without ITC) Restaurants in Hotels (Room Tariff ₹7,500 or More): 18% GST (with ITC) Outdoor Catering Services: 18% GST (with ITC) 2. GST on Food Delivery Services (Zomato, Swiggy, etc.) From January 1, 2022, GST on food delivery services is collected by aggregators like Swiggy and Zomato instead of restaurants. 5% GST is applicable on food delivery, and food aggregators must collect and deposit it directly. Restaurants listed on food delivery platforms do not need to collect GST separately. 3. GST on Takeaway and Home Delivery Same 5% GST applies to takeaway and home delivery as dine-in restaurants. No ITC is available to the restaurant. 4. Input Tax Credit (ITC) Restrictions Restaurants under the 5% GST scheme cannot claim ITC. Restaurants under 18% GST (hotel-based, catering, etc.) can claim ITC. Conclusion Dine-in, takeaway, and food delivery attract 5% GST without ITC. Luxury hotel restaurants and catering services attract 18% GST with ITC. Food delivery aggregators collect and pay GST on behalf of restaurants.

Answer By Anik

Dear client, Goods and Services Tax (GST) has significantly impacted the restaurant and food delivery services sector in India since its implementation on July 1, 2017. The introduction of GST aimed to simplify the tax structure, enhance compliance, and eliminate the cascading effect of taxes. Here’s how GST affects restaurants and food delivery services in India. Tax Rate: Restaurants in India are subject to varying GST rates based on their operational model. For instance, non-AC restaurants attract a GST rate of 5%, while AC restaurants are taxed at 18%. However, full-service liquor-serving establishments are taxed at a higher rate of 18% on the bill, including the price of liquor. This differentiation in rates can affect the pricing strategy and revenue of businesses in this sector. Input Tax Credit (ITC): One significant aspect of GST for restaurants is the availability of Input Tax Credit. Restaurants cannot claim ITC on inputs used in making food items, which has raised concerns regarding cost margins. While they can claim INR 750 per day outward tax liability under the composition scheme, they are unable to reclaim taxes paid on items like raw materials, making operational costs higher for some. Delivery Charges: Food delivery services, such as Zomato or Swiggy, are classified under "services" and therefore are subject to GST. Delivery charges collected by aggregators are taxable at the applicable rate. This means that consumers pay GST not just on food but also on delivery services, which can potentially increase overall costs for customers. Unified Taxation: GST’s unifying nature helps in better compliance for food delivery services, which can now seamlessly operate across states without worrying about multiple state-level tax registrations. This simplification has encouraged the growth of food tech companies by reducing bureaucratic challenges. Invoicing: Under GST, restaurants and food delivery services must issue proper tax invoices. Compliance requires businesses to maintain meticulous records of sales, purchases, and taxes. This has been a shift for many unorganized players in the sector who previously operated with minimal record-keeping practices. Exporting and managing compliance have thus become crucial aspects of operations. Effect on Menu Prices: The introduction of GST has influenced menu pricing as restaurants adjust to the tax burden. For instance, a meal priced at INR 100 at a non-AC restaurant would now typically include an additional 5% GST, increasing the final bill to INR 105. While customers are generally accepting of the tax, increased prices can sometimes lead to reduced footfall or orders for budget-sensitive consumers. We hope this clarifies your query. Please feel free to reach out for further assistance. Thank you.

Answer By Ayantika Mondal

Dear client, 1. GST Rates for Restaurants and Food Delivery The GST rates applicable to restaurants and food delivery services vary based on the nature of the establishment: • Standalone Restaurants (Non-AC and AC): As of recent regulations, GST is charged at 5% without the benefit of Input Tax Credit (ITC). This applies to both air-conditioned and non-air-conditioned restaurants. • Restaurants in Hotels (Room Tariff Below ₹7,500): These also attract 5% GST without ITC. • Restaurants in Hotels (Room Tariff Above ₹7,500): If the hotel room tariff exceeds ₹7,500 per night, GST on restaurant services increases to 18% with ITC eligibility. • Food Delivery Services (via Aggregators): Food delivery platforms like Swiggy and Zomato are required to collect and remit 5% GST on behalf of the restaurants they deliver from. This change, effective from January 1, 2022, shifts the tax liability to these platforms, even though the rate remains the same. 2. Input Tax Credit (ITC) Implications Restaurants charging 5% GST cannot claim Input Tax Credit on their purchases (such as raw materials and consumables). This impacts their overall profitability as they must absorb the cost of GST on inputs without being able to offset it. However, restaurants charging 18% GST (mainly those within premium hotels) can avail of ITC, which can lower their effective tax burden. 3. Impact on Pricing With the uniform 5% GST rate and no ITC, many standalone restaurants faced increased costs, leading to higher menu prices. Conversely, for high-end restaurants and hotel-based dining with 18% GST and ITC benefits, the ability to claim tax credits partially offsets this impact, reducing the need for aggressive price hikes. Food delivery platforms also pass on GST costs to consumers, effectively increasing the total bill amount. Since the tax is collected by aggregators directly, even small and cloud kitchens are now within the GST framework, ensuring broader tax compliance. 4. Compliance and Administrative Burden For restaurant owners, GST has simplified tax filing by consolidating multiple taxes into one, reducing bureaucratic overhead. However, regular filing of GST returns (GSTR-1, GSTR-3B) and the need to reconcile sales through online platforms has increased administrative duties. Food delivery aggregators must track and remit GST, which ensures better monitoring but adds compliance responsibilities. 5. Consumer Perspective From the consumer’s standpoint, GST adds a transparent tax line to their bills. However, with food delivery services, customers may notice a higher tax burden due to the centralized collection by aggregators. In some cases, dining at high-end hotels attracts higher taxes, making it more expensive compared to local restaurants. We hope this clarifies your query. Please feel free to reach out for further assistance. Thank you.