GST Implication on food and beverages service

Rajdeep Saini

05 Nov, 2020

The new indirect taxation law, Good and Service Tax (GST) benefitted the food and beverage industry. Prior to this GST law, a consumer has to give a number of taxes including Value Added Tax (VAT) and Service tax over and above the food value. After the implementation of the GST law, only one tax is levied on the consumer by the Central government and State government. However, it should be noted that the service charge is a charge that is applied by the restaurant and it is not a TAX. Further, it should be noted that alcoholic beverages will not come under the ambit of GST and will attract VAT. Along with the food services, GST will also be applicable to the food items which are bought by the society ranging from Nilto 18% GST.

The Pre-GST era for Food and beverages

As a customer, we barely pay attention to our food bill and also we are not aware of which components we are been taxed. If we remember our bill from the restaurant prior to the implementation of GST, we will witness that there are number of charges are added over the food amount such as Value added tax, Service Charge, and Service tax.

Taxes before GST on Food and beverages

• Service Tax- This is a tax that is charged by the government for the service provided by that particular restaurant.
• Value Added Tax– Tax charged on the portion of the food. [To reduce the complication the government has already bifurcated the taxes on the food portion and the Service portion]
• Service Charge– This is not a tax. It is a charge, applied by the restaurant’s owner not by the government. It is the income of the hotels and hence should not be confused with the service tax.

Post-GST era for Food and beverages

The Goods and Service Tax on the services relating to the food can be categorized into three slabs: 5%, 12%, and 18% depending upon many factors but not limited to the location of the food service provider/Restaurants. 

GST rates on food and beverages

The following are the GST rates applicable to the food Services:

• A GST rate on the food service is 5% which is provided by the restaurants (includes both air-conditioned and non air-conditioned).
• 5% GST applicable to the restaurant services including takeaway services and room services with hotels.
• 5% of GST is levied on any drink (non-alcoholic)/ Food served at the mess, canteens, cafeteria in school, college, industrial unit operation on a contractual basis.
• 5% of GST is charged by the services provided by the Indian railway/IRCTC^[1] or their contracted person both on platforms and onboard.
• 18% GST applicable to the restaurant services including takeaway services and room services with hotels having room tariffs more than Rs. 7500.
• 18% GST on the services related to food such as the delivery of food by the restaurant joint situated within the premises of any guest house or a club.
•  All the outdoor catering will attract 18% of GST.

GST on Food and beverages item

The following are the GST rates applicable to the food Items:

• GST rate is Nil on the chilled and fresh festival foods including garlic, onions, potatoes, leek etc.
• GST rate on the non-container packages such as shelled vegetables whether spilt/skinned is also Nil.
• GST on fresh grapes, bananas, coconut (fresh or dried), apples attract Nil GST.
• Nil GST on meat products whether dried or chilled.
• The egg produced whether it is preserved, fresh, or cooked has Nil GST.
• NIL GST on pasteurized or unpasteurized unsweetened milk.
• NIL GST on the vegetables packed in containers.
• NIL GST on the vegetable preserved by the suitable means for human consumption.
• 5% GST is Charged on the meat sold in containers and registered under a brand name or a trademark.
• 5% GST for birds’ egg sold without shell boiled and cooked by steaming.
• 5% GST is charged on ginger, turmeric, bay leaves, curry leaves, thyme, etc.
• 5% GST is levied on the meal powder.
• 12% GST is charged on all the fruits, vegetables, edible plants and nuts using sugar.
• 12% GST is charged on all the fruits, vegetables, edible plants and nuts using acetic acid/vinegar.
• 18% GST applicable to all the food preparation which are prepared using malt extract, flour etc including cocoa powder less than 40% of the body weight.
• All the cocoa products and chocolates are charged with 18% of GDP.

Impact of GST on Food and beverages

After the implementation of GST, the consumer of restaurants has evidenced a straightforward bill without the number of taxes. GST has substituted a multitude of cess and taxes including VAT, Service tax, education cess, Krishi Kalyan cess etc. Subsequent to the GST cost of the bill in restaurants have witness a decrease and further an increase in the customers.  

For the owners of restaurants, the further accessibility of input tax credit (ITC) leads to increase in the working capital availability for the owner of the restaurant. However, later amendments’ are made to reduce the benefits of the restaurant owners. As of yet, the rate of GST on food and beverage services and the food items does not surpass 18% as a result, there is no major price hike has been witnessed after the implementation of the GST.

Closing note on food and beverages services

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