In the present article, we are going to discuss at large the GST Composition Scheme as applicable to the Restaurants and Hotels. Many a time we should have noticed that people misuse the word ‘Hotel’ even for the ‘Restaurant’. Hence, first of all, let us figure out and clear what is ‘Restaurants’ and ‘Hotels’ and the differences between them. Here, we present the GST on restaurants services and its implications for the end consumer, the owner and the industry as a whole.
As we all know, ‘Restaurants’ is a business that prepares and serves the food and drinks to the customers. Whereas, based on the size and type, hotels are basically an establishment that provides an accommodation. Notably, a restaurant can be a part of the hotel.
One of the major differences which easily bifurcates ‘Restaurant’ and ‘Hotel’ is-
- The basic aim of the ‘Restaurant’ is to provide food and drinks; and
- The basic aim of the ‘Hotel’ is to provide accommodation.
As we all know, the composition scheme is an optional scheme available under GST. It is important to understand the relevant taxability to the fullest in order to decide whether to opt under the composition scheme or not? Here, let us understand the GST composition scheme relating to ‘Restaurant’ and ‘Hotel’ in detail hereunder-
Composition Scheme under GST : Eligibility Criteria
Get Free Bonus Report: Claim 100% ITC for your business
The eligibility conditions to opt for payment under the Composition Scheme are briefed hereunder-
- Category of registered person
The following class of registered person are not eligible to opt under the Composition scheme-
- A manufacturer of specified goods like ice cream and other edible ice; pan masala; tobacco; aerated water;
- A casual taxable person; and
- A non-resident taxable person.
What is turnover limit for composition dealer?
List of states | Threshold limit |
|---|---|
Andhra Pradesh; Chhattisgarh; Bihar; Gujarat; Goa; Jharkhand; Haryana; Karnataka; Kerala; Maharashtra; Odisha; Rajasthan; Telangana; Tamil Nadu; West Bengal; Uttar Pradesh; Jammu and Kashmir. | INR 150 Lakhs (INR 1.50 Crores) |
Assam; Arunachal Pradesh; Meghalaya; Mizoram; Manipur; Himachal Pradesh; Nagaland; Sikkim and Uttarakhand. | INR 75 Lakhs |
Notably, any restaurant wiling to opt under the composition scheme under GST needs to satisfy all the above prescribed conditions.
Time of opting under the Composition Scheme
Except for the person obtaining new GST registration and directly opting under the composition scheme, opting in the composition scheme is not possible in the middle of the Financial Year.
Accordingly, the time, as well as the manner of opting under the composition scheme, will be -
Particulars | Time of exercising the option under the composition scheme | Manner of exercising the option under the composition scheme |
|---|---|---|
The person obtaining a new GST registration | Any time while applying for fresh GST registration | While applying for GST registration, the applicant needs to exercise the option of composition scheme in Part B of Form GST REG- 1. {Rule 3(2) of the Central Goods and Services Tax Rules, 2017} |
A registered person switching over from normal scheme to composition scheme under GST | During the commencement of the Financial Year |
{Rule 3(3) of the Central Goods and Services Tax Rules, 2017} |
What is the GST rate on restaurants & Hotels?
The following table highlights the Rates applicable for GST on restaurants services and hotels. Also table describe the GST on food items
Particulars | Description | GST Rates |
|---|---|---|
Hotel Accommodation | With room tariff ranging between INR 1,001 to INR 7,500 | 12% |
Hotel Accommodation | With room tariff more than INR 7,500 | 18% |
Restaurants | Railways/ IRCTC | 5% without ITC |
Restaurants | Standalone restaurants | 5% without ITC |
Restaurants | GST rate for outdoor catering services | 5% without ITC |
Restaurants | Restaurants within hotels having room tariff less than INR 7,500 | 5% without ITC |
Restaurants | Restaurants within hotels having room tariff less than INR 7,500 | 12% with ITC |
Restaurants | Normal/ composite GST on outdoor catering services within hotels with room tariff less than INR 7,500 | 5% without ITC |
Restaurants | Normal/ composite outdoor catering within hotels with room tariff more than INR 7,500 | 18% with ITC |
Restaurants | Restaurant serving alcohol | 18% with ITC |
Notably, the person opting under the composition scheme is liable to pay tax @ of 5% (i.e., 2.5% CGST + 2.5% SGST) in case of restaurant services.
GST on Restaurants Services : Applicable restrictions under the composition scheme
Get Free Bonus Report: Claim 100% ITC for your business
The GST for restaurants opted under the composition scheme are restricted in the following manner -
- The GST for restaurants, opting under the composition scheme, will not be eligible to claim any input tax credit.
- Such restaurants, opting under the Scheme, is prohibited from collecting tax on the outward supplies.
- As a collection of tax is prohibited, the composition supplier i.e. restaurants will not be entitled to issue the tax invoice. Accordingly, the composition supplier i.e. restaurants will have to issue a ‘Bill of Supply’.
- The restaurants, under the composition scheme, are not allowed to carry out inter-state supply of goods or services.
- The restaurants, registered under the composition scheme, are also restricted from supplying exempt items under GST like alcoholic liquor for human consumption; high speed diesel; petroleum crude; natural gas etc.
- Importantly and most affecting restriction, under composition scheme, in case of restaurant service is that they are restricted to supply goods through e-commerce operators under GST (Eg. Zomato, Swiggy etc.). It is important to note here that the restriction is supply via an e-commerce operator, however, there is no restriction on the supply of goods through a portal owned and operated by the supplier.
How to identify GST for restaurants under composition scheme?
Being a customer, it is important to identify the GST for restaurants if the same is registered under the composition scheme or not. Notably, the restaurants opted under the composition scheme is not allowed to collect tax from the customer.
Following are the identifier through which the customer can identify that the restaurant has opted under the composition scheme-
- Restaurants, opting under the composition scheme, is required to mention ‘Composition taxable person, not eligible to collect tax on supplies’ on the bill of supplies; and
- Further, restaurants opting under the composition scheme should have mentioned ‘Composition taxable person’ on all the notices/ signboards outside the place of business of the person.
Withdrawal from composition scheme : Circumstances
It is mandatory to comply with all the conditions to remain opted in the composition scheme. On the date on which any of the conditions ceases to be complied with, the composition supplier will be treated as any other registered supplier. Accordingly, non-compliance of the condition can result into the following –
GST on Restaurants Services opting under the composition scheme : Pros and cons
The following table briefly explains the pros and cons of the restaurants opting under the composition scheme as compared to that of the normal scheme -
Particulars | Composition scheme | Normal scheme |
|---|---|---|
Business territory | The restaurants opting under the composition scheme is not allowed to undertake inter-state supply of goods or services. | The restaurants opting under the normal scheme is free to undertake inter-state composite supply under GST |
The restaurants opting under the composition scheme is not eligible to avail any input tax credit. Hence, all the input tax credit adds up to the cost of the GST restaurant. | The GST restaurants opting under the normal scheme is eligible to avail all the input tax credit which satisfies all the conditions prescribed under the CGST Act and Rules. | |
Tax collection from the customer | The restaurants opting under the composition scheme are restricted from collecting tax from the customer. Accordingly, the same also adds up to the cost of the restaurant. | The restaurants opting under the normal scheme collects tax from the customer and simply deposits the same to the Government. |
Supply through e-commerce operator | The restaurants opting under the composition scheme are not allowed to supply through e-commerce operator. This is the major drawback from the view point of the restaurants. | The restaurants opting under the normal scheme can easily supply through e-commerce operator under GST. |
Rates of GST | The rates applicable to the composition scheme dealer under GST tries to cover up all the above drawback. The restaurants opting under the composition scheme has to pay GST @ 5% as against 12% or 18%. | The rate of GST payable under the normal scheme is much higher than the composition scheme. |
The second major point which tries to cover up the above drawback is the filing of GST return. The restaurants opting under the composition scheme is required to file only 5 returns. Four quarterly returns in Form GST CMP-08 and one annual return in Form GSTR-4. | The restaurants opting under the normal scheme are required to carry out lots of return filing compliances under GST. |
Going through the above points, it makes it easy for the restaurants to decide whether to go for the composition scheme or not.
GST on Restaurants Services 3 Important Points
Get Free Bonus Report: Claim 100% ITC for your business
- The composition scheme is qua-person, not qua-class-
Option of composition scheme once opted will be applicable to all the supplies undertaken by the registered person. Meaning thereby that a registered person cannot opt for payment of taxes under a composition scheme in case of a supply of one class of goods and opt for the normal scheme me for payment of taxes for the supply of other class of goods/ services. - Applicability of reverse charge mechanism on inward supplies under composition scheme-
The composition dealer is liable to make payment at the applicable rates on the supply in respect of all the inward supplies liable to tax under the reverse charge mechanism. - The restaurant service provider opting under the composition scheme is required to file the following GST returns-
Returns | Description | Duration of filing of the return | Due date of filing of the return |
|---|---|---|---|
Form GST CMP-08 {Rule 62(1)(i) of Central Goods and Services Tax Rules} | Statement for payment of self-assessed tax | Quarterly basis | Within 18 days of the month succeeding the quarter |
Form GSTR-4 [Rule 62(1)(ii) of Central Goods and Services Tax Rules] | Return for the financial year of the registered person who has opted under the composition levy | Annual basis | Within 30th April of the next Financial Year |
Claim upto 100% Input Tax Credit
Easiest GSTR 2B Reconciliation With Reverse ERP Integration