The Goods and Services Tax (GST) is a landmark reform in India’s indirect tax regime that entered the Indian economy on 1st July 2017. Most of the restaurants have already begun carrying out with the impact studies to get their business to be able to adapt and accommodate its business to GST tax regime. The existing system has a greater scope for manual intervention, but GST aims to achieve a tectonic shift to a single digitized compliance set-up. Through the GST Registration and Implementation, the taxpayers will pay one consolidated tax instead of the plethora of taxes including State Value-Added Tax (VAT), Central Excise, and Service Tax, Entry Tax or Octroi and a few other indirect taxes. Read in detail the impact of the GST on the restaurant business here.
Owners of the restaurant business are always hassled with the several taxes right from the purchase of raw materials to creating the product to ultimately selling the final product to the consumer. Once your turnover is more than the fundamental exemption limit, then your restaurants need a GST registration. Before moving forward with the procedure, you must know the following points:
GST registration is state specific, so if your restaurants have outlets in different states, then you need to have a separate registration for each state.
If you have outlets in the state itself, then you don’t need to take separate registration for each outlet.
The Procedure of GST Registration for Restaurants
Let us look at the process of GST registration for your restaurant:
1. Documents Required for GST Registration of Restaurants
The documents required for GST registration are-
- Photo of the restaurant owner/proprietor
- Picture of Managing partner/designated partner in case of a partnership
Proof of Registration
- Partnership deed in case of partnership firm
- No registration certificate required in case of proprietorship
Evidence of Principle place of Restaurant
- If you own the property, then ownership document like electricity bill, tax receipt/property tax receipt or registry documents of that place.
- If you are on rent, then copy of rent agreement/lease agreement with electricity bill in the name of the owner.
- If you neither own the property nor on rent, then submit electricity bill along with the copy of NOC (No Objection Certificate)
Bank Account Documents
- The other documents that are required related to bank bare-Scanned copy of bank statement/bank passbook or scan copy of canceled cheque containing Name, bank account no., MICR, IFSC and branch details including code.
2. GST Registration for Restaurant Business
The following steps have to be followed further once all the documents required for GST registration has been procured.
- Apply for Registration: Firstly, you need to apply for GST registration in Form GST REG – 01.
You would be then asked to upload the documents and sign the same with your digital signature.
- Verification of Documents: Once you apply, the department officer will verify your application. If all the documents are found to be authentic, then he/she shall grant you the registration certificate, or else your application might be rejected after giving reasons.
- Grant of Registration Certificate: The department shall grant you the registration certificate then.
3. Application of GST Tax Rates on Restaurant Business
The GST tax rate has been defined as per the different categories of the restaurant as explained at the beginning of the article which is as follows:
- Category 1: Supply of food/drinks in the restaurant without AC and without the license to serve liquor
GST Tax rate: 5% without input tax credit (ITC)
- Category 2: Supply of food/drinks in the restaurant having AC facility at any time during the year
GST Tax rate: 5% with full Input Tax Credit (ITC)
- Category 3: Supply of food/drinks in an air-conditioned restaurant in 5 star or above-rated hotels
GST Tax rate: 18% with full Input Tax Credit (ITC) above rated hotels
While these were the initial holdings, GST regulations went through a lot of amendments, and you can find such changes here.
4. IGST, CGST, and SGST to be Charged by Restaurant Business
The components of Dual GST are:
a) CGST: Central Goods and Service Tax
b) SGST: State Goods and Service Tax
c) IGST: Integrated Goods and Service Tax
Since India is a federal country, both the Central and the state governments have responsibilities to perform as per the Constitution. Therefore, a dual GST will be keeping with the Constitutional requirement of fiscal federalism. In the case of the restaurant business, the sales are made within the state, and hence CGST and SGST shall be charged accordingly. There will be a common e-return for CGST, SGST, IGST, and Additional Tax.
5. Filing for Returns Under the GST
Under GST, the restaurant business is treated as par with any other business. As per the GST returns rules, three monthly returns are required to be filed. Here are the following three monthly returns which are expected to be filed:
- Return no.1 – Outward Return (Sales Return): The first return on GST is the sales return which is required to be filed by 10th of the following month.
- Return no.2 – Inward Return (Purchase Return): The second return is filed before 15th of the following month.
- Return no.3 – Consolidated Return: Based upon the sales and purchase return, the consolidated return is also filed by 20th of the following month.
- Further, apart from the above three monthly return, GST Annual Return has to be filed by 31st December of next Financial year.
Other Important Information for the GST Registration
Read the additional relevant information for the GST registration of restaurants below.
1. Invoices under GST
As per the GST rules, every invoice or receipt issued to the customer will have to be presented before the government and based upon that tax returns will be prepared and filed.
2. Composition Scheme
Composition Scheme under GST is merely an extension Businesses dealing only in goods can opt for composition scheme. However, Services providers have been kept outside the scope of this scheme. The restaurant sector taxpayers are allowed to choose the plan.
This holds true if your annual turnover is below Rs 75 Lakhs. Restaurants with an annual turnover less than Rs 75 lakhs will be able to avail the composition scheme under the goods and services tax (GST) regime and pay a flat tax of 5% to the current scheme under VAT law.
3. Input Tax Credit (ITC) for Restaurant Business
As per the recent ruling by the government, the Input Tax Credit for restaurants has been withdrawn.
Input Tax Credit can be defined as the availing of credit for input taxes paid. Restaurants in hotels that charge Rs 7500 per room are allowed are allowed to take input credit without any restriction subject to specific guidelines. A restaurant owner would get credits for the taxes paid on the raw materials purchased while computing the final indirect tax liability on the items that are collected from the consumers.
The few more essential conditions that have to be kept in mind are:
- The stock invoice should not be more than 12 months old.
- The dealer should be registered.
- The stock is to be used in a taxable supply.
- Credit is allowable under GST law
4. Place of Supply for Restaurant Business
The location of supply is the registered place of business of the recipient. The Place of Supply under GST is an essential factor after which levy of SGST, CGST & IGST will be determined as your place of supply defines whether the transaction will be counted as intra-state(i.e., within the same state) or interstate (i.e., between two states) and then accordingly the changeability of tax can be stated.
GST regulation underwent a lot of changes. In November 2017, while the entire country rejoiced when the GST Council decided to reduce the GST rates from 18% to 5% for all restaurants along with the Input Tax Credit withdrawal, there is a darker side of this provision that was very casually ignored, know about them here.
Although the GST aims to simplify the entire tax structure, the registration and implementation of the GST can be quite complex. Read this article to find out about the common GST mistakes made by restaurant owners and the penalty involved with the mistakes.
Got more queries? Refer to Frequently Asked Questions (FAQ) about the GST below.