Tax Liability for a Restaurant with an Annual Turnover of Up to 30 Lakhs in India

When considering the tax obligations of a restaurant with an annual turnover of up to 30 lakhs in India, several factors come into play, including business structure, tax regimes, and specific deductions. This guide provides an overview of the key elements of taxation for such establishments.

1. Goods and Services Tax (GST)

India has a comprehensive Goods and Services Tax (GST) that impacts businesses based on their annual turnover. For restaurants having an annual turnover up to 30 lakhs, the tax landscape is as follows:

Turnover up to 20 lakhs: Most states offer exemption from GST for businesses with an annual turnover up to 20 lakhs. Special category states have a limit of 10 lakhs. Turnover between 20 lakhs and 30 lakhs: Restaurants exceeding 20 lakhs in annual turnover must register for GST and charge GST on their sales. The standard rate for restaurants is typically 5% without input tax credit (ITC) or 18% with ITC.

2. Income Tax and Presumptive Taxation (Section 44AD)

In addition to GST, income tax is another critical aspect of a restaurant's financial obligations:

Presumptive Taxation under Section 44AD: Sole proprietorships and partnerships with a turnover up to 2 crore can opt for this scheme. A specific percentage of the total turnover is deemed as taxable income, which is then taxed at applicable slab rates.

The following represents the current income tax slabs for the financial year 2023-24 (assessment year 2024-25):

Income RangeIncome Tax Rate Up to 2.5 lakhsNil 2.5 lakhs to 5 lakhs5% 5 lakhs to 10 lakhs20% Above 10 lakhs30%

3. Other Considerations for Taxation

Beyond GST and income tax, other factors influence a restaurant's tax liability:

Deductions: Various deductions can reduce taxable income, such as those for rent, salaries, utilities, and operational costs. Tax Audit: If the annual turnover exceeds 1 crore, a tax audit is mandatory. However, this threshold is higher for presumptive taxation schemes.

Example Calculation

Let's illustrate these concepts with an example:

Assume a restaurant has an annual turnover of 30 lakhs. For GST, if they are registered, they would charge 5% GST on sales. Assuming the restaurant opts for presumptive taxation under Section 44AD with 8% of the total turnover considered as income: In this case, the taxable income would be 8% of 30 lakhs, equating to 240,000. Since this amount is below the 2.5 lakh exemption limit, the income tax liability is zero.

Conclusion

For precise tax liability, it is essential to consider individual circumstances and seek professional advice from tax experts or accountants. This ensures compliance with all applicable laws and optimizes the tax position for the business.