Impact of GST on Restaurant business

GST on Restaurant business

We are moving to a new indirect tax regime- GST. Many businesses are carrying the impact studies and changes that is required in the current system in order to accommodate the new compliance model. The nation’s Food and Beverage Industry have been left shaken with the passing of GST bill. It affects the consumer as well as the manufacturer as a mode of indirect tax. The impact of GST is seen effectively in Restaurant Industry especially in two categories. First those who form part of the clientele i.e the consumers from fine diners to café hoppers. Second, people those who are working as the restaurateurs’ i.e businessmen, restaurant owners, investors.

The GST was passed in the Upper House (The Rajya Sabha) of the Indian Parliament. It will be implemented from 1st July, 2017. One nation one tax slogan will replace the plethora of taxes. With the GST coming, many states have levied taxes like entertainment tax, purchase tax, service tax, sales tax, value added tax, etc. But not everyone knows that how much they are exactly paying for the good and services they buy. We pay tax on the total amount of goods and services that include:

  • Tax on raw material
  • Tax paid by the manufacturer
  • The cost of the raw material
  • The value added by the manufacture
  • Retailer’s margin of selling the good


These forms of charges will form into one singe tax-GST.

  • Hotel industry is pegged at 18% rate.
  • GST will have four slab structures of 28%, 18%, 12% and 5%.


After Arun Jaitley the Finance Minister concluded the 2 day GST meeting in Srinagar told that GST to the service sector was adopted completely at the meeting. Depending on the nature of service, in the services sector and for special reasons, several categorizations have been made. Further, he said that the current exemptions on services like education and healthcare will continue. After GST, The whole impact on service costs will be non-inflationary.

The restaurants with annual turnover of less than 50 lakh will be under 5% tax slab, Air conditioned with liquor license restaurants will be taxed at 18%, and non-ACs food joints will be taxed at 12%. Lodges and hotels with tariff less than Rs 1000 will be exempted from GST. Those with a room rate of Rs 1000- 2,500 will be taxed at 12%. Luxury hotels and five stars will be taxed at 18%.

GST can be also a good thing. Here are the reasons:

  • The GST has made more pocket-friendly with single transparent 18% charge opposed to the earlier one 20 to 24 percent charges which were levied cumulatively.
  • A customer can save a small percentage when he eats out due to a standard value charged instead of scanning rates of taxes and duties. It can be done under the present tax regime. The value can come down to 18 percent based on the total value of the bill.


These benefits are expected on Restaurant Industry due to levy of GST

  • Finally the consumers are free to have haggle its brains and calculate taxes on the final bill.
  • Hotels and restaurants might improve the whole service as single tax will be processed at the checkout.
  • Trading on commodities that was earlier not regulated has become more structured like cereals, oilseeds and pulses have been put under the structured tax. So in terms of consumption and manufacture, it can be accessed better.
  • It is needless to say that the payment system will be faster and effective with a single tax.


There is a bad news for beverages as well. According to the GST Council:

  • These products attract a cess, so posing a disadvantage to all these beverages
  • Aerated drinks come under the highest tax rate of 28 percent as they fall under luxury goods


Steering towards the liquor and alcohol sector, it has got affected to a great extent as suppliers and vendors. Depending on the input and output, it shall be exposed to non-GST and GST regimes. Whether the business owner or someone who enjoys eating on a regular basis, the GST will make a difference. Starting from the farmers to manufacturers and also the consumers, the demographic will visualize a steady upward move in the right direction.