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Margesh Rai
| Updated: 23 May, 2020 | Category: Goods and Service Tax

GST on Food Services and Food Items: All that you need to Know

GST on food services

GST on food services came to the fore, and still, food businesses are unable to adjust themselves according to the current changes in the system to make room for the new compliance model. Earlier, there was service tax and VAT regime, and then, with the implementation of GST on food services, all the cascading effects of indirect taxes got abolished. However, the service charge implemented by restaurants is distinct from goods and service tax.

In India, Goods and service tax on food services depends on different types of factors covering but not confined to the exact location of the restaurant or food service provider and establishment type. Here, the GST can be 5%, 12% or 18%. The noteworthy thing is that alcoholic beverages still appeal to the state level tax i.e., VAT. Hence, restaurants serving food as well as alcoholic beverages will call attention to separate taxes with goods and service tax levied on non-alcoholic beverages and food. At the same time, VAT would get imposed on alcoholic drinks served. Not only on the food services, but GST on food is also applicable to those food items that an ordinary man purchases. The range of the rate it features is beginning from nil and up to 18 % GST. Through this article, we will help you in exploring the principal rates applicable to goods and service tax on food services along with food products.

GST on Food Services: Rates Applicable

Given below are the salient rates applicable to GST on food services-

  • Applicability of 18% goods and service tax to all outdoor catering services rendered.
  • 18% goods and service tax on food services comprising food delivery services provided by a food joint or restaurant positioned within premises of a guest house, club, etc.
  • 18% goods and service tax applicable to restaurant services including room services and takeaway services provided by restaurants established inside a hotel featuring room tariffs more than Rs 7500.
  • 5% GST on food services rendered by A/C as well as Non-A/C restaurants.
  • Applicability of 5% goods and service tax on restaurant services encompassing takeaway and room services provided by restaurants established within the building of a hotel featuring room tariff below Rs 7500.
  • 5% goods and service tax on meals or food services rendered by government-owned CPSEs i.e., IRCTC/Indian Railways or their licenses in trains, stations, or platforms.
  • Applicability of 5% goods and service tax on any non-alcoholic drinks or food served at mess/cafeteria/canteen in office, college, industrial unit, school, hostel, etc. on a contract basis.

*GST rates are subject to periodic modification.

Read our article:What is the Impact of GST on Loans?

Applicability of GST rates on Food Items

Given below are the rates applicable to Goods and service tax on food items-

  • 18% goods and service tax on chocolate and other cocoa and chocolate products.
  • 18% goods and services tax on food preparations like those foods prepared using malt extract, flour, etc. enclosing cocoa below 40% of overall weight.
  • Applicability of 5% goods and service tax on food such as powder/meal of dried legumes.
  • 5% GST on turmeric (Not including fresh turmeric), curry leaves, thyme, bay leaves, ginger (not including fresh ginger), etc.
  • 5% goods and service tax on birds’ egg out of egg/shell yolks either cooked or boiled by steaming.
  • 5% goods and service tax applicable to container packed meat bearing the registered brand name or trademark.
  • 5% goods and service tax on vegetables that are dried leguminous stuffed in a container bearing the registered name of the brand.
  • NIL goods and service tax on fresh or chilled meat out of the container.
  • NIL GST on chilled as well as fresh vegetables including garlic, potatoes, onions, etc.
  • NIL goods and service tax on preserved/fresh/cooked bird eggs in the shell.
  • NIL GST on those vegetables that get preserved using different methods unfit for direct consumption by humans.
  • NIL goods and service tax on pasteurized or unpasteurized unsweetened milk, cream, etc.
  • NIL GST on fresh apples, dried/fresh coconut/ fresh pears, fresh grapes, etc.
  • NIL goods and service tax on vegetables packed inside a container (boiled/steamed/uncooked).
  • NIL GST on dried leguminous shelled vegetables that are non-container packed regardless if split/ skinned or not.
  • Applicability of 12% goods and service tax on nuts, fruits, vegetables, and different edible parts of the plant that got prepared or preserved by using acetic acid or vinegar.
  • 12% goods and service tax on consumable parts of the plant, fruits, nuts, and vegetables preserved with the help of sugar.

*GST rates are subject to periodic modification.

Impact of GST on Food Services

  • After GST implementation, those who are having their breakfast and dinner in the restaurants have witnessed a simplified taxation process in terms of the bill as goods and service tax came as a replacement for various taxes as well as cesses such as Krishi Kalyan cess, VAT, service tax and many more. After the implementation of GST on food services, customers have also marked the reduction in tax rates on restaurant bills. However, the reduction in the cost for customers in relation to eating out was recognized to be passable at best.
  • The service charge applied by the restaurant will be payable by the customer along with goods and service tax on food since GST has not affected service charge at all. For owners of the restaurant, the ITC availability after the GST implementation[1] was anticipated to enhance the accessibility of working capital for restaurants. Later, input tax credit benefits available for owners of the restaurants got reduced after the amendments. As per the current goods and service tax rules, those eateries or restaurants charging 18% GST would get the benefits of the input tax credit. On the other hand, those eateries/restaurants charging 5% GST on food services won’t be able to reap the benefits of ITC.
  • Goods and service tax exemption have been provided in the case of frozen and fresh products as well. Goods and service tax on food services or items never cross 18% margin, and no food items have joined the 28% tax bracket i.e., highest tax bracket. Consequently, there is no report on the substantial increase or decrease in price after the implementation of GST on food services and food items.

Take Away

The implementation of GST on food services and food items has put an end to the cascading effects of various indirect taxes. This article talks about the GST rates applicable to different food services along with the applicability of the GST rate on food items. Moreover, customers are enjoying the reduction in bill amount after GST implementation.

Read our article: Know all about OIDAR Services under GST

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Margesh Rai

Being a poetry lover, and an avid reader, Margesh is fanatical about legal content writing. After completing graduation in B.Com(H), he decided to follow his passion. Writing impeccable in-depth content about legal and finance-related topics is his biggest forte.

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