Composition Scheme under GST for Restaurant and Hotel Services

For the benefit of small taxpayers, the GST Department brought out the composition scheme initiative. It is a simple and relatively hassle-free way for GST Compliance for small taxpayers. Anyone can voluntarily opt for this scheme if they come under the set guidelines. Composition Scheme under GST is also available for Restaurant and Hotel Services that come with certain conditions.

1. Registering for Composition Scheme by Restaurants:

As the turnover limit of opting for composition scheme under GST is upto Rs. 1.5 CR, hence any restaurant whose annual turnover is upto Rs. 1.5 CR is eligible to be registered under the GST Composition Scheme. In the case of restaurants in the following states, restaurants with a turnover of up to Rs.75 lakhs can be registered under the GST composition scheme:

Arunachal Pradesh
Assam
Manipur
Meghalaya
Mizoram
Nagaland
Sikkim
Tripura
Himachal Pradesh

2. Restaurants that cannot register as Composite Taxpayers:

A restaurant serving alcoholic liquor of any form cannot opt for the composition scheme.
A restaurant having a place of business in different states.
A restaurant supplying services through e-commerce operators like Zomato, Swiggy etc.
A temporary or seasonal restaurant with Casual Taxable Person status.
A restaurant manufacturing any of the following goods:
- Ice cream and other edible ice, whether or not containing cocoa
- Pan masala
- Tobacco and manufactured tobacco substitutes

3. Conditions for Restaurants opting Composition Scheme:

Cannot collect GST from their customers nor can they issue a taxable Tax invoice under GST
Required to issue “Bill of Supply” mentioning “Composition Taxable Person” on the same
Cannot claim Input Tax Credit on their Purchases
Cannot provide inter-state supply. However, no restriction on receiving inter-state supplies
GST is payable on a Reverse Charge basis in case of purchase from an unregistered supplier
Cannot supply items exempted from GST

Note:
Same PAN cannot be used to opt for different schemes. For example: If a restaurant owner has opted for the composition scheme with one PAN number, the same PAN number cannot be used for other businesses with the regular scheme. All registered businesses with the same PAN need to opt for the same schemes.

If the aggregate turnover of the restaurant exceeds Rs 1.5 crore or 75 Lakhs for specified states, the composition scheme stands invalid. In that case, the restaurant service providers need to pay and file taxes under the regular scheme

4. GST Rate for Restaurant Services:

Restaurants opting for Composition Scheme under GST are required to pay GST at a concessional rate of 5% on the annual turnover without the benefit of ITC.

But where restaurants/catering services are provided in Hotels with tariff up to Rs. 7,500 this concessional rate shall not be available

Composition Scheme – Goods and Service Tax Rates
Business Type	GST Rates
Railways/IRCTC	5% (without ITC)
Standalone Restaurants	5% (without ITC)
Standalone Outdoor Catering Services	5% (without ITC)
Restaurants within Hotels (where room tariff is less than Rs. 7500)	5% (without ITC)
Normal Outdoor catering within Hotels (where room tariff is less than Rs. 7500)	5% (without ITC)
Restaurants within Hotels * (where room tariff is more than or equal to Rs. 7500)	18% with ITC
Normal Outdoor catering within Hotels (where room tariff is more than or equal to Rs. 7500)	18% with ITC

* This covers supplying catering or other services in hotels (having room tariff of Rs 7,500 or more) and not any hotel accommodation services

5. Difference between the Regular Scheme and Composition Scheme for Restaurant Services:

Particulars	Regular Taxpayers	Composition Scheme Taxpayers
GST Returns	GSTR-1 (Monthly or Quarterly) GSTR-3B (monthly basis) Annual return in Form GSTR-9 / GSTR-9C	GST CMP-08 (Quarterly from 1st April 2019) GSTR-4 – Annual (From FY 2019-20) Annual return in Form GSTR-9A. (Upto FY 2019-20)
Supply	Can supply to inter-state and intra-state Can supply through E-Commerce websites like Swiggy, Zomato	Intra-state supply only Cannot supply through E-Commerce websites like Swiggy, Zomato
Tax Collection	As per prescribed rates	Not allowed to collect GST from the customers
Conditions to Opt	Anyone can opt for the regular scheme	A taxpayer whose turnover is below Rs 1.5 crore or Rs 75 lakh (In the case of North-Eastern states and Himachal Pradesh)
Invoices	Regular GST Tax Invoice	Bill of Supply
GST Payment	Output GST Input GST Tax on reverse charge	GST Payment has to be made out of pocket since same cannot be collected from customers GST on supplies made. Tax on reverse charge
ITC	The credit of Input Tax paid is available depending upon the category	Not eligible to get ITC

6. GST Return Filing for Restaurants who opt for Composition Scheme:

The taxpayer needs to file the following returns:

GST CMP-08 (Quarterly from 1st April 2019)
GSTR-4 – Annual (From FY 2019-20)
Annual return in Form GSTR-9A. (Upto FY 2019-20)

7. Identification of Composition Scheme restaurant:

Restaurants registered under the composition scheme cannot issue regular GST invoice but will have to issue a bill of supply. In a Bill of Supply, the only rate per quantity, quantity and the taxable value is to be mentioned. Restaurants registered under the Composition scheme must mention the words “composition taxable person, not eligible to collect tax on supplies” on the bill of supply.

FAQ:

Can Restaurant holding Franchise levy GST on Food Sales @5% claim ITC?

No, a rate of 5% is subject to ITC restriction.

How can a taxpayer convert from regular to composition scheme in GST?

Any taxpayer who is registered as a normal taxpayer under GST needs to file an application to opt for Composition Levy in Form GST-CMP-02 prior to the commencement of the financial year for which the option to pay tax under the aforesaid section is exercised.

If a registered taxpayer is availing of the composition scheme for one FY, is it required for him/her to file a fresh application to opt for the composition scheme next year?

For those taxpayers, who have already availed the composition scheme, there is no requirement to file a fresh application opting for the composition scheme, subject to compliance of relevant conditions/restrictions in this regard.

What are the returns to be filed by a Composition taxpayer?

A Composition taxpayer needs to pay tax and furnish the following:

GSTR-4 – Annual
Annual return in Form GSTR-9A.
GST CMP-08

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