What is GST (Goods and Service Tax)? And GST Rate on Food Items

Introduction

The Goods and Services Tax (GST) has had a significant impact on various sectors of the economy in India, including the food industry. This comprehensive tax system replaced multiple indirect taxes like VAT (Value Added Tax), Service Tax, and Excise Duty, aiming to simplify the taxation process. For food products and services, GST has brought a uniform taxation structure with different rates based on the type of food or service. In this article, we will explore the GST on food items, how it affects restaurant bills, the GST rate on food items, and how it has reshaped the food sector in India.

What is GST (Goods and Service Tax)?

The Goods and Services Tax (GST) is a tax imposed on goods and services. It is an indirect tax that has mostly superseded many other indirect taxes in India, such as VAT, Services Tax, and Excise Duty. In India, the Goods and Services Tax (GST) is a multi-stage, destination-based tax that is levied on every value addition. Goods and Services Tax is a single domestic indirect tax law that applies to the entire country.

Why GST in Food items Important?

GST in food items plays a crucial role in streamlining the taxation process within the food sector, benefiting both consumers and businesses. It ensures a uniform tax system across states, eliminating discrepancies caused by varying state-level taxes like VAT. This consistency simplifies inter-state trade and stabilizes food prices.
The GST framework also brings transparency and simplicity, making it easier for businesses to comply with tax regulations and file returns. By replacing multiple taxes with a single structure, GST reduces the cascading effect of taxation, ensuring fair pricing for consumers.

GST Rate on Food Items in India

GST rates on food items are not uniform across all types of food products. Different food items attract different tax rates based on factors such as their processing, packaging, and branding. Below is a breakdown of the GST rates on various food items in India:

1. GST on Fresh and Unprocessed Food

Fresh vegetables, fruits, and unprocessed food such as meat and fish are exempt from GST. This means that these items do not attract any tax.
For instance, containerized vegetables that are steamed, uncooked, or boiled do not have any GST applicable.

2. Processed and Packaged Food

Packaged food with a registered brand name attracts a 5% GST rate. For example, meat packed in branded containers is subject to a 5% GST.
Certain processed food items, such as ginger, turmeric, and other spices, also attract a 5% GST when they are packed with a brand name.

3. Grocery Items

Non-in-shell avian eggs and egg yolks that are steamed or boiled are taxed at 5%.
Dried leguminous vegetables, such as lentils and chickpeas, when packaged with a brand name, attract a 5% GST rate.

4. Preserved Food

Food items like sugar-preserved vegetables, fruits, and nuts are taxed at 12%.
Similarly, vinegar, acetic acid, and other preserved food items like fruits and vegetables are taxed at 12%.

5. Prepared Food

Food preparations containing less than 40% cocoa, like chocolates and other cocoa-based products, are taxed at 18%.
Other food preparations made with flour, malt extract, or similar ingredients are also subject to an 18% GST rate.

GST Impact on Food Products in India

The introduction of GST has brought a mixed impact on food products in India. On the one hand, it simplified the tax structure by replacing a wide array of state and central taxes. On the other hand, it also led to some changes in the way food products and services are taxed.

• GST on Food Services in Restaurants

Food services, such as those provided by restaurants, cafes, and eateries, are subject to GST as well. The rate depends on the nature of the establishment. For example, restaurants that provide air-conditioned services are taxed at 18% GST, whereas non-air-conditioned restaurants charge a 5% GST.

• However, GST on food in restaurants doesn’t include service charges, which remain separate and payable by the customer. Although GST on restaurant bills has simplified the tax structure, customers often report that it hasn’t significantly reduced their total spending.

• ITC (Input Tax Credit) Benefits

Restaurants and food service providers who charge 18% GST on food services can claim Input Tax Credit (ITC) benefits, which allow them to offset some of the taxes paid on their purchases. However, restaurants that charge only 5% GST on food services do not receive ITC benefits.

• Overall Tax Burden

The GST on food and food services does not exceed 18%. As a result, food products and services have not seen significant price increases or decreases. While some customers may have seen a slight reduction in the overall cost of eating out, the service charge remains an additional expense on top of GST.

GST Exemptions for Certain Food Items

It is important to note that certain food items, especially those that are fresh or unprocessed, are exempt from GST. These exemptions are designed to ensure that basic food items remain affordable for the general population. Additionally, food products like fruits, vegetables, and dairy products are not subject to any GST.
Some of the key exemptions include:

• Fresh and unprocessed fruits and vegetables.
• Fresh meat, poultry, and fish.
• Fresh milk and dairy products.
• Fresh eggs.

These exemptions ensure that GST does not burden consumers with higher prices for essential food products.

Conclusion

In conclusion, the introduction of GST in India has had a considerable impact on the food industry. The GST rate on food items is categorized based on factors such as processing, packaging, and branding. While fresh and unprocessed food items remain exempt from GST, packaged and processed foods attract varying rates ranging from 5% to 18%.
The GST on food services has also simplified the tax structure for restaurants, though it has not resulted in significant price reductions for consumers. Overall, GST has simplified the food tax landscape, though the impact on consumer prices remains relatively minimal.