The government has introduced a composition levy under the GST law which provides a simple and easy taxing mechanism for small taxpayers to keep up with GST Compliance. Under this GST composition scheme, a small business having a turnover of less than 100 lakhs can enrol for this composition levy and can pay tax at a predetermined fixed rate on the basis of their turnover. Small taxpayers enlisted under the GST composition scheme need not file monthly GST returns or pay monthly GST payments. In this write-up, we will discuss the implication of GST composition scheme for restaurants.

1. Registration requirement under GST Composition Scheme for Restaurants

  • A person engaged in the supply of food and non-alcoholic drinks for human consumption (Restaurants business) with a turnover of less than 100 Lakhs are entitled to registration under the GST Composition Scheme
  • However, the turnover limit for the restaurants in the states of Assam, Arunachal Pradesh, Himachal Pradesh, Mizoram, Manipur, Meghalaya, Nagaland, Sikkim and Tripura shall not exceed Rs.75 Lakhs in order to opt registration under this scheme.

GST Composition Scheme for Restaurants

2. Conditions for registration under GST Composition Scheme

The following conditions must be satisfied by the restaurants for registration in the composition scheme:

  • The person engaged in the supply of food and drinks (other than alcoholic drinks) is not running a temporary or a seasonal restaurant.
  • Whenever the person engaged in restaurant service procures goods and services from an unregistered person, the restaurant shall be liable to pay GST on a reverse charge basis.
  • There is a restriction on inter-state supply of Goods. In simple words, any person engaged in the inter-state supply of goods cannot opt GST composition scheme.
  • Composition taxable person (being the person engaged in the restaurant business) cannot supply goods through an electronic commerce operator,
  • Restaurants cannot be involved in the production of Pan Masala, Tobacco, Ice Cream, Edible Ice.

3. Rates under GST Composition Scheme for Restaurants

Composition Scheme – Goods and Service Tax Rates
Business Type CGST SGST Total
Traders (Goods) 0.5% 0.5% 1%
Manufacturer 0.5% 0.5% 1%
Supplier of food & drinks (restaurant business) 2.5% 2.5% 5%
Service Providers Supplier of services (Except supplier of food and non-alcoholic drinks) cannot opt composition scheme.

Therefore, person engaged in supply of food and drinks (restaurant business) is required to pay GST at 5% (2.5 % CGST and 2.5% SGST).

While computing the threshold limit of 100 lakh, inclusions in and exclusions from ‘aggregate turnover’ are as follows:

It Includes:
Value of    all outward supplies

–Taxable supplies

–Exempt supplies

–Exports

–Inter-State supplies

-CGST

–SGST

–UTGST

–IGST

–Cess

–Value of inward supplies on which tax is payable under reverse charge

of persons having the same PAN be computed on all India basis.

4. Return filing under GST composition Scheme for Restaurants

A person engaged in Restaurant business can pay tax under GST normal provisions without opting GST composition scheme and have to file monthly GST returns. On contrary, restaurants opting composition scheme will have to file GST returns quarterly in Form GSTR-4 on the common GSTN portal by the 18th of the month following the quarter. For an example, GST return in respect of supplies made by the restaurant from October to December is required to file the return by 18th January.

Click here to know What Returns A Composition Dealer needs to File?

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Company: Taxguru / Sandeep Kanoi & Associates
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8 Comments

  1. Karan Bisht says:

    Dear Sir,
    I am running a Hotel/ Resort at RamNagar, Uttrakhand. Expected Turnover would be approx 90 L. Can I opt composition Scheme of GST Rule. If yes, rate of GST??

    Thanks
    Karan Bisht
    9871395979

  2. Yagnesh says:

    Dear Sir, What will be the rate under composition scheme to be applied for tea stall without seating arrangement. 1% or 2% or 5%.
    Does it categorized under restaurant services though does not having any seating arrangement.

  3. Deepshikha says:

    Sir as per composition scheme rules, the person cannot raise an invoice and shall raise a bill of supply. Also he cannot collect tax from customers. Then why do restaurants raise invoice and charge 5% gst

    1. Dinesh Agarwal says:

      REASONS
      1)Because their turnover exceeds the threshold limit of 1 cr / 75 lacs for opting the Composition Scheme and therefore they fall under Normal Forward Charge category.

      2) Composition Scheme is not mandatory for the suppliers . It is on their discretion to opt for the same or not.

  4. Siddhartha Mishra says:

    Dear Sir, A guest house also supplies food to its guests, besides providing accommodation. A seperate bill for food is raised. What will be the rate of GST on food supplied if the rooms attract a GST tariff of 18%.

    1. Amar Kumar Parhi says:

      First you see the said guest house turn over below 20 lacs or not 2) whether GST registered or not.
      3) if registered the Regular or Composition.
      Accordingly charges 5% or 18%

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