GST on Restaurants in India: 5%, 18% and the Composition Scheme Explained

How GST works for restaurants in India: the 5% rate without input tax credit, the 18% exception, composition scheme eligibility, service charge and delivery apps.

Restaurant GST confuses almost every new owner, mostly because the rate you charge, whether you can claim input tax credit, and how you file all depend on which category you fall into. This guide walks through the three situations most independent restaurants end up in. Rates and thresholds change, so treat this as orientation and confirm current numbers with your CA or the GST portal before acting on them.

The standard case: 5% with no input tax credit

A standalone restaurant, cafe or takeaway that is registered under GST generally charges 5% on food and beverage bills, split as 2.5% CGST and 2.5% SGST. The catch is that this lower rate comes without input tax credit. The GST you pay on ingredients, rent, packaging and equipment is a cost to you, not something you can set off against the 5% you collect. That is why pricing menus tax-inclusive or exclusive, and knowing your real margin after tax, matters more than it first seems.

The exception: restaurants inside hotels

Restaurant services supplied from premises that count as “specified premises” — broadly, a restaurant inside a hotel whose room tariff is above the notified threshold — are treated differently: a higher 18% rate, with input tax credit available. If your restaurant sits inside a hotel, ask your CA which side of that line you are on rather than assuming.

The composition scheme: a flat rate, with strings attached

Small restaurants below the annual turnover limit (commonly ₹1.5 crore, with a lower limit in some states — verify the current one) can opt into the composition scheme. In exchange for simpler compliance you pay a flat percentage of turnover, with no input tax credit. The trade-offs are real:

• You cannot charge GST to customers as a separate line. The document you give is a bill of supply, not a tax invoice.
• You pay tax quarterly and file an annual return instead of the monthly GSTR-1 and GSTR-3B cycle.
• Businesses that sell alcohol for consumption generally cannot opt in, and there are restrictions around inter-state supplies and supplying through e-commerce operators.
• A B2B customer cannot claim credit on your bill, which matters if you serve corporate clients or run catering.

Composition suits a small, mostly walk-in restaurant with low turnover. It stops making sense once you serve businesses, sell alcohol, or grow past the limit.

What goes on a GST invoice

A proper tax invoice for a restaurant carries your name and GSTIN, a sequential invoice number that restarts each financial year, the date, a description of the supply with its SAC code (restaurant services are classified under SAC 9963), the taxable value, the CGST and SGST split, and the total. Numbering gaps and duplicates are the first thing an audit or a return reconciliation trips over, which is a good reason to let software assign invoice numbers instead of writing them by hand.

Service charge and tips

A mandatory service charge added to the bill is generally treated as part of the value of the supply, so GST applies on it. Genuinely voluntary tips left by the customer are generally not taxed the same way. Keep the two separate on the bill and in your books, and ask your CA how your specific practice should be treated.

Orders that come through delivery apps

For restaurant services supplied through an e-commerce operator such as a food delivery app, the operator is responsible for collecting and paying the GST under Section 9(5) of the CGST Act. That means you should not charge GST again to the customer on those orders — but you still report them in a dedicated section of your GSTR-1. Mixing them up with your own dine-in sales is a common source of over- or under-reported tax.

The filing rhythm for regular (non-composition) restaurants

• GSTR-1 (details of sales) monthly by the 11th of the following month, or quarterly under the QRMP scheme.
• GSTR-3B (summary and tax payment) monthly by around the 20th, with quarterly filers paying tax monthly through a challan.
• An annual return after the year closes.

Missing a due date means late fees and interest, and a mismatch between your GSTR-1 and GSTR-3B is one of the most common triggers for a notice.

Making it less painful

Most GST trouble for restaurants is really a bookkeeping problem: sales recorded by payment method in one place, delivery-app orders somewhere else, refunds handled by memory. If every sale is posted as a proper accounting entry with the correct tax split at the moment it is billed, the returns are mostly assembly. That is how EasyBills is built — billing, tax and books share one record, and GSTR-1 is generated from your own invoices. Whatever tool you use, keep the tax logic in one place and let your CA review the output rather than rebuild it.