GST

Restaurants under the GST Composition Scheme

The GST composition plan is a method of paying taxes available to small enterprises. The composite scheme offers two key advantages over standard GST filing: less paperwork and compliance and lower tax burden. Normal taxpayers, for instance, are required to file three monthly GST returns:

• GSTR-1
• GSTR-2
• GSTR-3

As well as one yearly report, which is GSTR-9. However, paying GST becomes simpler if you have filed for the composition scheme as you need to submit one yearly return, GSTR 9A, and one quarterly report, GSTR 4. GST composition scheme acts as a streamlined tax structure for small companies whose yearly sales are up to Rs 1.5 crore. This scheme requires them to pay a predetermined (fixed) proportion of their revenues in taxes without keeping extensive records or submitting returns regularly. When the restaurant claims the input tax credit, they are subject to a 5% GST; when restaurants claim ITC under GST, they are subject to an 18% GST.

What is a composition scheme in GST?

The composition levy is a different approach to collecting taxes intended for small taxpayers with annual revenue up to Rs. 75 lakhs (or Rs. 50 lakhs in some States). The composition scheme’s main goals are to make things simpler and lower small taxpayers’ compliance costs. The composition scheme is a small taxpayer’s option for paying GST if their combined revenue in the previous fiscal year was less than Rs. 75 lakhs. The maximum turnover is Rs. 50 lakhs for the following States:

• Arunachal Pradesh
• Nagaland
• Sikkim
• Himachal Pradesh
• Assam
• Manipur
• Tripura
• Meghalaya
• Mizoram

Rules of composition scheme for restaurants

• Turnover of not more than Rs. 1.5 crores (Rs. 1 crore in the case of States under the special category).
• Should not perform any services outside those of a restaurant (with the exception of exempt and interest-related services).
• Restaurants are prohibited from making interstate outward supply of goods.
• Cannot supply any goods like alcohol that are not subject to the GST.
• No input tax credit is available to restaurants.
• Restaurants are not allowed to collect any taxes from the customer.
• The goods or services cannot be supplied through an e-commerce operator.

GST rates for restaurants

Types of restaurant or business	GST Rates
Railways/IRCTC	5%  – without input tax credit
Standalone Restaurants	5%  – without input tax credit
Standalone Outdoor Catering Services	5%  – without input tax credit
Restaurants which are in the Hotels(where room tax is less than Rs. 7500)	5%  – without input tax credit
Restaurants within Hotels(where room tax is more than or equal to Rs. 7500)	18% with input tax credit
Normal Outdoor catering in Hotels(where room tax is less than Rs. 7500)	5%  – without input tax credit
Normal Outdoor catering in Hotels(where room tariff is more than or equal to Rs. 7500)	18% with input tax credits

How do I opt for the composition scheme?

Form GST CMP-02 must be submitted to the government by anybody who wants to opt into the GST Composition Scheme for restaurants. Alternatively, they can also do it by visiting the GST Portal¹. The person who intends to engage in the scheme must submit this notification at the start of each fiscal year.

When can I opt for a composition scheme for restaurants?

Opting into the composition scheme in the middle of the financial year is not allowed as per the rules and regulations of the composition scheme under GST, except when the individual obtains a new GST registration and does so. At the time of filing for a new GST Registration, the applicant has the option to use the composition scheme at any moment. Rule 3(2) of the central goods and Services tax rules of 2017 states that while submitting a Form GST REG-1 for GST registration, the applicant can opt for the composition scheme at that time.

Before the start of the financial year, a registered person who intends to change from the regular scheme to the composition scheme under the GST must file an announcement in Form GST CMP-02. After that, a statement should be given in Form GST ITC-3 within sixty days.

How do we know whether the restaurant is under the composition scheme or not?

The following information must be provided by restaurants that have chosen to use the Composition Scheme for Restaurants:

• For restaurants employing the composition scheme, the top of the supply bill must read “composition taxable person, not eligible to collect tax on supplies.”
• They must also state “composition taxable person” on any notice or signboard prominently displayed at their place of operation.

Restaurants that are exempted from the composition scheme

• A restaurant that manufactures goods like ice cream or any other kind of edible ice, whether or not it contains cocoa, cannot opt for the composition scheme under GST.
• A restaurant that manufactures pan masala, tobacco or any other substitute goods of the same cannot opt into the composition scheme under the GST
• A restaurant that sells alcoholic drinks of any kind cannot opt into the composition scheme under GST.
• When the place of business is in different states of a restaurant, those restaurants can also not opt into the composition scheme under GST.
• When the restaurants use e-commerce operators to supply the services, those restaurants cannot opt for the composition scheme under GST.
• A restaurant that is seasonal or temporary with a causal taxable person.

Regular scheme v/s Composition scheme.

Particulars	Composite Scheme	Regular scheme
Threshold limit for registration	Rs. 1.5 Crores is the threshold limit for a composite scheme.	Rs. 20 Lakh is the threshold for the regular scheme.
Input tax credit	Under the composition scheme, the Input tax credit is not allowed to be claimed.	For the regular scheme, you can claim an Input tax credit.
Tax collection	No taxes can be collected from the consumers.	Taxes can be collected from the consumers.
Tax invoice	Can raise the bill of supply instead of the tax invoice	A tax invoice can be issued under the regular scheme.
GST returns	In the composition scheme, the taxpayer can file quarterly returns.	For the regular scheme, the taxpayers have to file monthly returns.
Supply of goods and services	The intrastate supply is restricted in the composition scheme.	There is no type of restriction on any supply of goods and services.
Business through E-commerce operator	Supply of services through an e-commerce operator is not allowed.	The supply of goods through e-commerce operators can be done.

GST returns for restaurants under the composition scheme

It would be necessary for restaurants that are not registered with the GST composition system to submit monthly GST returns. The GSTN common portal must receive electronic quarterly returns in Form GSTR-4 by the 18th of the month following the quarter from restaurants registered with the composition scheme.

Conclusion

With the composition scheme in existence, the taxation procedures have been made very simple and easy to comply with for small business owners. This scheme has helped in encouraging many small restaurant businesses to comply with tax regulations under GST. The composition scheme for the restaurants assists them in tax administration and fosters growth in the industry of food service.

Frequently Asked Questions

1. https://www.gst.gov.in/