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GST on Restaurants: All you Need to Know

  • Published on : 14/01/2021

After years of juggling in between different taxes., whether on supplies, raw materials, etc., Goods and Services Tax (GST), came as a breath of fresh air for most, including restaurant owners. After a certain amount of turnover, it has become mandatory for restaurateurs to register themselves under GST. 

However, GST, since its inception in July 2017 has created confusion for business owners, whether they are existing or newly entering the market. While most restaurateurs have taken great care to understand GST and all that it implies in order to implement, many remain clueless. 

Due to this, many restaurateurs, among other business owners, have fallen prey to the breaking of laws due to ignorance, and face hefty penalties. 

To eliminate this problem, here’s a little read that can help you, as restaurant owners, know everything you need to about GST and what it implies:

The Process of Getting your Restaurant Registered

Here’s how you can have your restaurant registered:

Collating the required documents

In order to opt for the GST registration process, one would need the following documents:

  • A photo of the owner or proprietor of the restaurant
  • In case of a partnership, the photo of the partner

Proof of registering the restaurant

  • The partnership deed, in case it is a partnership

The restaurant address proof

  • If you own the property, you must submit documents of ownership as proof, including property receipt, electricity bill, tax receipt, or registry documents of the restaurant property.
  • If you’re using a rental space, the lease or rent agreement copy and electricity bill in the owner’s name can work as proof.
  • For those who neither own the property nor have it on lease or rent, an electricity bill and a no-objection certificate (NOC) can work as proof.

Getting on with the registration

Once you have all the documents in place, you can go ahead with the following steps:

Application for registration 

  • You would first need to apply for the GST registration through the Form GST REG – 01. 
  • Once done, you would need to upload the documents along with your digital signature.

Verification of the documents 

  • Once the application has been sent, it will be verified by the department officer. 
  • If the documents pass their perusal in terms of authenticity, you will be granted the registration certificate. 

Understanding the Application of GST Rates

There are a number of categories within restaurants that define the application of the GST tax rate. Here’s what you need to know:

Category 1

The supplying of food or drinks without an air-conditioning facility and also without the license to serve alcohol – The GST tax rate applied is 5% without the input tax credit (ITC)

Category 2

The supplying of food or drinks with air conditioning facility any time of the year – The GST tax rate applied is 5% with full ITC.

Category 3

The supply of food or drinks in a restaurant that is equipped with air-conditioning facilities in restaurants rated 5 stars or above – The GST tax rate applied is 18% with full ITC.

These were the base ratings, with the GST regulations having undergone many amendments over time.

The Need for Dual GST

Dual GST components involve:

  • CGST (Central Goods and Service Tax)
  • SGST (State Goods and Service Tax)
  • IGST (Integrated Goods and Service Tax)

As a federal country, India has both the state and the central government responsible to uphold the Constitution. A dual GST keeps in line with the fiscal federation requirement of the Constitution. Restaurants make sales within the state, requiring the CGST and SGST to be charged accordingly. However, the returns filed are common for all the above-mentioned taxes as well as any additional taxes involved.

Filing for GST Returns

Like any other business, restaurants, too, can roll in profits if they understand the impact of GST on their establishment and go by the rules. According to the GST return rules, you need to file three monthly returns, which are mentioned below:

Return #1 Sales or Outward Return

This return is expected to be filed on the 10th day of the month that follows.

Return #2 Purchase or Inward Return

This needs to be filed in the following month on the 15th.

Return #3 Consolidated Return

Depending on the sales and purchase returns, this return is filed on the 20th day of the following month.

Further, the annual restaurant GST also needs to be filed by the 31st of December of the following financial year.

Other Factors to Consider

Apart from the above-mentioned factors, here are some other important aspects to keep in mind:

  • Under the GST rule, every receipt or invoice that has been issued to a customer has to be presented to the government, upon which the tax returns will be filed.
  • Small restaurants can opt for a composition scheme under GST, eliminating smaller taxes such as those applicable on supplies.
  • The availing of the Input Tax Credit is subject to change, depending on the annual turnover of the restaurant.
  • The location of your restaurant or, to be precise, the registered place of supply, also determines the tax that will be levied. 

While the GST was implemented to simplify the tax structure, it can be quite confusing, requiring one to read up a lot in order to understand its ins and outs. However, knowing how it works can help restaurant owners be more informed and avoid possible penalties. It can also help restaurateurs save on taxes by following the regulations levied closely and figuring out all of the smaller taxes they are spared with the implementation of GST.

It is also wise to know that GST comes with its own set of limitations that are applicable to establishments within every industry. By having a thorough understanding of the same, you can avoid the liability of paying unnecessarily.

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