GST for restaurants in India: rates, ITC and billing rules

The rate depends on where you are, not whether you have AC

This is the single most common misconception. Plenty of articles online still say "non-AC restaurants charge 5%, air-conditioned restaurants charge 18%." That distinction was removed in November 2017. If someone quotes it to you today, their information is roughly a decade out of date.

What actually determines your rate is the type of premises you operate in:

Rates reflect the changes introduced by the 56th GST Council, effective 22 September 2025. GST rules change — confirm your specific position with your CA before filing.

Why "5% without ITC" costs more than it looks

Input tax credit lets a business offset the GST it paid on purchases against the GST it collected on sales. Restaurants on the 5% rate cannot do this. That has a direct effect on your margins that many owners underestimate.

Say you buy ₹1,00,000 of packaged supplies in a month and pay ₹5,000 GST on them. A business with ITC would recover that ₹5,000. You cannot — it becomes part of your cost of goods. So when you calculate food cost, you must use the GST-inclusive purchase price, not the base price. Costing a dish off pre-tax invoice values will quietly overstate every margin on your menu.

This is also why the 18%-with-ITC option isn't automatically worse. For a hotel restaurant with heavy purchasing, recoverable credit can offset the higher output rate. It's an arithmetic question, not an obvious win either way — worth modelling with your accountant.

Alcohol is not under GST — and that complicates bar bills

Alcoholic liquor for human consumption is constitutionally excluded from GST. It remains under state VAT and excise, at rates each state sets independently. This is not a loophole or an option — it's how the tax system is structured.

The practical consequence for anyone running a bar: one ticket can carry two different tax regimes. The food and non-alcoholic drinks attract GST at 5%. The liquor attracts your state's VAT rate. They must be computed separately and shown separately, and they are reported to two different authorities.

If your billing system can only apply one tax rate per bill, this is where it breaks down — and where manual workarounds start producing numbers that don't reconcile at month end. Per-item tax rates are not a nice-to-have for a bar; they're a requirement.

What a compliant restaurant bill must show

If you're GST-registered, a tax invoice needs to carry, at minimum:

• ✓ Your legal name, address and GSTIN
• ✓ A unique, sequential invoice number and the date — gaps and duplicates are exactly what an audit looks for
• ✓ A description of each item with quantity and value
• ✓ The taxable value and the tax split into CGST and SGST (not a single lumped "GST" figure)
• ✓ The total, and the customer's GSTIN if they've asked for a B2B invoice

Two details worth getting right. First, CGST and SGST must be shown separately — for a 5% rate that's 2.5% + 2.5%. Second, sequential numbering must hold across your whole series; if two terminals each keep their own counter and both print "Bill 41", you have a compliance problem that only surfaces later.

Service charge is not a tax

A service charge is your revenue, not a government levy, and it is not the same thing as the old "service tax." It must be shown as a separate line from GST, and it cannot be presented to the customer as though it were a statutory charge. Consumer authorities have taken a dim view of bills that blur the two.

The composition scheme: simpler, but restrictive

If your turnover is under ₹1.5 crore you may be eligible for the composition scheme. You pay a flat rate on turnover and file quarterly rather than monthly, which is genuinely less administrative work. The trade-offs are real, though: no input tax credit, no inter-state supply, and you cannot issue a tax invoice — meaning you can't pass credit to B2B customers such as corporate accounts.

For a single-outlet restaurant serving walk-in customers it often makes sense. If you do corporate catering or plan to expand across state lines, it usually doesn't.

Where owners actually get caught out

• Costing on pre-GST purchase prices. With no ITC, the tax you pay on supplies is a real cost. Ignore it and every margin figure you have is optimistic.
• One tax rate applied to a mixed bill. Food at 5% and liquor at state VAT cannot be averaged into one rate.
• Broken invoice sequences. Multiple terminals with independent counters, or a manual bill book used "just during the rush."
• Aggregator orders assumed to be handled. Delivery platforms have their own GST treatment; those sales still need to reconcile against your own books.
• Reporting from memory at filing time. If your system can't produce a rate-wise summary for the period, someone is rebuilding it by hand — and that's where errors enter.

This guide is general information for restaurant operators, not tax advice. GST rates and rules change, and your position depends on your specific circumstances — please confirm with a qualified chartered accountant before making filing or pricing decisions.