GST Implications for Hospitality Sector: Restaurants, Lodges, Banquet Halls & Religious Accommodation

Owners of restaurants, lodges, hotels, marriage halls, banquet facilities and even spiritual mutts or trusts often struggle to correctly apply GST provisions. The same establishment may:

  • Run a restaurant (dine‑in, takeaway and delivery)
  • Provide lodging or guest rooms
  • Rent out halls for marriages, conferences and events
  • Offer catering services
  • Sell liquor and cigarettes (outside GST for liquor; within GST for cigarettes)
  • Supply food via e‑commerce operators like Zomato and Swiggy

A single wrong call on composition eligibility, tax rate, or input tax credit (ITC) can lead to substantial demands with interest and penalty. This guide explains, in a structured and practical manner:

  • When a restaurant can choose composition and when it must shift to the regular scheme
  • The current GST rate structure on hotel/lodge rooms and the ITC position
  • How to tax marriage / convention halls and bundled packages (hall + food + rooms)
  • The GST treatment of food ordered through Zomato/Swiggy under Section 9(5)
  • How GST applies to pilgrim accommodation run by mutts / charitable or religious trusts

The objective is to enable both assessee‑owners and consultants to apply the law correctly in real‑life situations.

1. Composition Scheme for Restaurants under Section 10 – Eligibility & Restrictions

Section 10 of the CGST Act introduces a simplified composition scheme for small assessees. For restaurants, a special composition rate of 5% (2.5% CGST + 2.5% SGST) on turnover is available, but only where strict statutory conditions are satisfied.

1.1 Who Can Opt for Composition as a Restaurant?

A restaurant business may choose the composition scheme only when all of the following conditions are met:

  • Turnover limit

    • Aggregate turnover in the preceding financial year must not exceed ₹1.5 crore (with a lower threshold in specified special category States).

  • Nature of supply

    • It must be engaged in supplying food or non‑alcoholic beverages as restaurant service.

  • No supply of liquor

    • It must not serve alcoholic liquor for human consumption, as liquor falls outside GST and is governed by State excise/VAT laws.

  • No inter‑State outward supplies

    • It must not make any inter‑State outward supply of goods or services.

  • No supply through specified e‑commerce operators

    • It must not supply through e‑commerce operators such as Zomato or Swiggy which are liable to pay tax under Section 9(5) or collect TCS.

  • No supply of notified ineligible goods

    • It must not trade in items like ice cream, pan masala, tobacco products, etc., which have been notified as excluded from composition.

1.2 Key Compliance Requirements for Composition Restaurants

Where a restaurant validly opts for composition:

  • Tax rate and ITC

    • GST is payable at 5% on turnover.
    • No ITC is allowed on inputs, input services or capital goods.

  • Invoicing and display

    • It cannot collect GST separately from customers.
    • It must issue a Bill of Supply (not a tax invoice).
    • It must display the board “composition taxable person, not eligible to collect tax” at the business premises.

  • Returns

    • Quarterly payment and statement through CMP‑08.
    • Annual return through GSTR‑4.

1.3 When Composition Must Be Discontinued

A restaurant must exit the composition scheme and shift to the regular scheme from the date of contravention if:

  • It starts selling liquor for human consumption
  • It begins supplying via Zomato/Swiggy or similar e‑commerce operators
  • It exceeds the turnover limit
  • It starts dealing in excluded goods like ice cream, pan masala, tobacco products, etc.
  • It makes inter‑State outward supplies

For small local vegetarian outlets or “darshinis” dealing in dine‑in and parcels within the State, with no liquor, no e‑commerce and moderate turnover, composition can still be commercially attractive—provided they fully understand and strictly adhere to all conditions.

2. Regular GST on Restaurant Services – Differentiating 5% and 18%

Where a restaurant does not qualify for composition, or voluntarily opts out, GST is payable under the regular notification for restaurant services.

2.1 Current Broad Rate Structure for Restaurant & Catering Services

The prevailing position in practice (subject to specific notifications) can be grouped as follows:

  • Standalone restaurants (including takeaway/delivery)

    • GST at 5% without ITC.

  • Restaurants located in hotels with room tariff below ₹7,500

    • GST at 5% without ITC.

  • Restaurants located in hotels where declared room tariff is ₹7,500 or more

    • GST at 18% with ITC.

  • Outdoor catering / catering contracts (other than standard restaurant service)

    • Generally 18% with ITC.

Thus, in practice there are two dominant patterns:

  1. Most regular restaurants / mid‑range hotels

    • GST at 5% without ITC.

  2. Restaurants in higher‑tariff hotels or specific catering services

    • GST at 18% with ITC.

2.2 ITC Position under Regular Scheme

  • Where the restaurant chooses or falls under 5% without ITC, ITC is blocked on inputs, input services and capital goods used for restaurant services.
  • Where the restaurant is taxed at 18% with ITC (e.g., in hotels with higher room tariffs or specific catering services), full ITC is ordinarily available on eligible procurement.

2.3 Treatment of Liquor in Bar‑cum‑Restaurants