GST On Food

GST is levied on many food products on different slabs based on the type, location, food products & so on. Know about these slabs here.

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Overview of GST On Food

A business must register for GST if its annual revenue reaches ₹ 40 lakhs, or ₹ 10 lakhs in northeastern and hill states. The Goods and Service Tax, an indirect tax, replaces sales tax, value-added tax, excise duty, and other taxes.

GST reduces tax evasion and aids in maintaining tax compliance. Each state's government will be able to create and implement programmes that will benefit the populace as a result of firms registering for GST in that state.

GST is levied on the supply of goods and services, including food services and restaurants. It is a multi-stage, destination-based tax that is levied upon value addition. This single domestic indirect tax is applicable across the entire country.

Components of GST

The Goods and Services tax on food is divided into the following elements:

  • CGST: The central government collects this tax on the sale that takes place on an intra-state level
  • SGST: The state government collects this tax on an intra-state sale
  • IGST: The central government collects this tax for an inter-state sale.

Key Features of GST on Food Services and Products

  • GST has replaced all the other indirect taxes that were previously levied, including VAT, service tax, and special additional customs duty. GST has clubbed all this and brought them into the unified tax system.
  • GST compensation scheme: small and medium enterprises with an annual turnover of up to ₹ 1 crore or ₹ 75 lakhs in specific states can opt for this scheme; here, they need to pay GST at a fixed rate of 1%. However, once they choose it, they cannot opt for input tax credit system.

All goods and services are taxed as per this tax structure. It is inclusive of the food services and restaurant business.

Benefits of GST Registration

GST has various benefits that could contribute to the country's economic growth and ease the way of business. Here’s a list of benefits of GST Registration Process:

  • GST helps contribute to the government’s revenue by boosting taxpayer compliance and broadening the tax base
  • It reduces the indirect tax, which in turn reduces the hidden cost of businesses
  • Registration of taxpayers and tax refunds procedure will be common
  • It helps to regulate certain unregulated and unorganised industries in India
  • Corruption-free tax administration is possible with GST
  • The composition scheme is helpful for smaller companies since the GST calculated is based on a fixed turnover
  • GST will only be assessed at the time of final consumption and not at numerous locations. This will facilitate the elimination of economic distortions and the growth of a single national market.

Understanding the GST on Food and Restaurant Services

The GST on food services is subdivided into the following slab rates:

  • 5%
  • 12%
  • 18%

These are based on different factors, including the establishment type and the restaurant's location. The service charge implemented by the restaurant is different from GST. In the case of alcoholic beverages, VAT is applicable, which is a state-level tax.

So, if a restaurant serves alcoholic beverages and food, there will be separate taxes with GST applicable to food and non-alcoholic drinks. At the same time, VAT will apply to alcoholic beverages.

GST Tax Rates

As we have discussed above, the GST on food falls under three different tax slabs 5%, 12%, and 18%. Here, we are enumerating the details of the same:

  • 5% on food services offered by air-conditioned and non-air-conditioned restaurants
  • 5% GST applies to services offered by restaurants with tariff rates less than ₹ 7500. This service includes room service and takeaway.
  • 5% GST on food or non-alcoholic drinks served in canteens, messes, and cafeterias, which are operational on a contract basis in offices, colleges, hostels, schools, and industrial units.
  • 5% GST is applicable on food and meals served by the Indian Railways
  • 18% GST is applicable on restaurant services inclusive of room service and takeaway offered by restaurants. The hotel tariff, in this case, would be more than ₹ 7,500
  • 18% GST on food services, including food delivery by restaurants and food joints located at guest houses or clubs
  • 18% GST is applicable on all outdoor catering services
  • 5-star luxury hotels and restaurants attract GST of 28%

GST on Food Items

Similar to restaurant services, any food product also falls under certain tax slabs. This is highlighted below:

GST RateProduct Type
NILPackaged food, both cooked and uncooked
NILPreserved vegetable
5%Packaged meat with a brand name or trademark
5%Bird’s eggs
5%Packaged leguminous food having a brand name or trademark
5%Dry ginger, dry turmeric, bay leaves, curry leaves, thyme, and more
5%Powdered meal
12%Nuts, fruits, and edible plant parts
12%Fruits and vegetables preserved in vinegar
18%Malt extract and flour with less than 40% cocoa powder

At present, none of the food services or items fall under the slab of 28%. There is no GST on fresh fruits, meat, and vegetables. Only packaged containers with brand names or trademarks fall under the GST tax slab. The maximum GST on food and restaurant services is 18%.

Impact of GST on Food

Several taxes, including the VAT, Krishi Kalyan cess, cess for services, and other taxes, have been replaced by the GST on food. The effective tax on a restaurant bill has decreased due to the implementation of GST. Although the GST system has greatly simplified the complexity of the various taxes, the service fees that diners continue to pay in restaurants have not been significantly affected.

The Input Tax Credit, or ITC, the benefit is only available to services that charge an 18% GST, by GST provisions. However, a restaurant that charges 5% GST on food services is not eligible for ITC.

Apart from 5-star hotels and restaurants, no food items or services currently fall under the 28% threshold. As a result, there has been no significant price increase following implementing of GST on food items.

It was anticipated that introducing ITC would increase the availability of working capital for restaurants after implementing GST. Later, changes were made that reduced the ITC benefit for restaurant owners. However, under current GST rules, the ITC benefit is only available to restaurants that charge 18% GST.

Why Vakilsearch?

Our intellectual lawyers and company secretaries in India will help you set up the GST registration for your food business, you need to submit the required documents, and we will take care of all the paperwork. You don’t have to worry about the registration process. Our team will be in touch with you the entire time, and they will clarify all your doubts. Our team is competent in terms of legal expertise, and compliance. You can always get in touch with our experts to learn more about food licenses and other topics.

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