GST for Restaurants in India: The Complete 2026 Guide for Restaurant Owners

The direct answer: Most restaurants in India pay 5% GST on food and non-alcoholic beverages, with no Input Tax Credit (ITC). Restaurants with an alcohol licence pay 18% on food but can claim ITC. The composition scheme is available to restaurants with turnover up to ₹1.5 crore — it simplifies compliance but disallows ITC and inter-state supply. E-Invoice is mandatory for businesses with aggregate turnover above ₹5 crore. Monthly filers must submit GSTR-1 by the 11th and GSTR-3B by the 20th of the following month.

GST Rate Structure for Restaurants in 2026

The GST rate applicable to your restaurant depends on three variables: your restaurant type, whether you serve alcohol, and your registration category.

The main rate table

What about the 12% rate?

The 12% GST rate no longer applies to restaurants after the 2018 GST Council revision. Restaurant services are taxed at either 5% (most operators) or 18% (alcohol licence holders and premium hotel restaurants). Some packaged food items sold from restaurant premises — like bottled beverages, branded packaged snacks — may attract their own GST rates (12% or 18%) under the relevant HSN codes.

The AC/non-AC distinction

Pre-GST, service tax applied differently to AC and non-AC restaurants. Under GST, this distinction no longer changes the applicable rate — both pay 5%. The common misconception that AC restaurants attract 18% is incorrect.

Alcohol: outside the GST framework

Beer, wine, and spirits are taxed under state excise and VAT, not GST. If you serve alcohol, your billing system must separately calculate and show state excise duty / VAT on alcohol items. GST is levied on food and non-alcoholic beverages only.

Input Tax Credit: Who Can Claim It and Who Cannot

ITC is the mechanism that prevents "tax on tax" — you offset the GST you pay on business inputs against the GST you collect from customers.

The 5% restaurant: no ITC

If you're taxed at 5%, you cannot claim ITC on any business purchase — ingredients, kitchen equipment, packaging, cleaning supplies, or services. This was the government's trade-off for simplifying compliance with the lower rate.

Every rupee of GST you pay on inputs is a cost to your business. Build it into your pricing.

The 18% restaurant: ITC allowed

If you hold an alcohol licence or run a restaurant in a hotel with room tariff ≥ ₹7,500/night, you pay 18% on food sales — but you can claim ITC on:

• Raw ingredients from GST-registered suppliers
• Kitchen equipment and appliances
• Packaging material
• Professional services (CA, legal, software)
• Maintenance services

You cannot claim ITC on items used for personal consumption or on motor vehicles (unless you're in the transportation business).

ITC reconciliation: the GSTR-2B obligation

For 18% restaurants, ITC claims must match what your suppliers have reported in their GSTR-1. The auto-generated GSTR-2B statement (available by the 14th of each month) shows exactly what ITC is available to claim. Claiming ITC not reflected in GSTR-2B is a common cause of GST notices.

The Composition Scheme: Is It Right for Your Restaurant?

The composition scheme is a simplified tax regime available to restaurants with aggregate annual turnover up to ₹1.5 crore (₹75 lakh in some special category states).

How it works

• Tax rate: 5% of turnover, paid quarterly
• Filing: CMP-08 quarterly return + annual GSTR-4
• Billing: Issue bill of supply (not tax invoice). Cannot charge GST from customers separately — the 5% is absorbed from your revenue
• ITC: Not available
• Inter-state supply: Not allowed — you cannot sell across state lines

When the composition scheme makes sense

✓ Single-outlet restaurant with turnover well under ₹1.5Cr
✓ Minimal or no B2B supply (no corporate clients needing tax invoices)
✓ No plans for inter-state supply
✓ Prioritising compliance simplicity over ITC benefit
✓ Restaurant is in a state where the threshold is ₹1.5Cr (not a special category state)

When to avoid the composition scheme

✗ Your turnover is approaching ₹1.5Cr — crossing the threshold mid-year requires switching to regular registration and catching up on compliance
✗ You supply corporates or businesses who need GST-compliant tax invoices (bill of supply won't work for their ITC claims)
✗ You have significant ITC-eligible purchases where the offset would exceed the compliance simplicity benefit
✗ You operate or plan to operate across state lines
✗ You're in a hotel where the room tariff would qualify you for the 18% rate with full ITC

E-Invoice Requirements for Restaurants

E-invoicing requires businesses to generate invoices through the government's Invoice Registration Portal (IRP). Each invoice gets a unique IRN (Invoice Reference Number) and a QR code that is machine-verifiable.

Current threshold (2026)

Mandatory for aggregate annual turnover ≥ ₹5 crore — this threshold has progressively lowered since 2020. Monitor GST Council notifications for future changes.

Does it apply to restaurant-to-consumer billing?

No. E-invoicing applies to B2B supplies (supply to GST-registered recipients). Your bill to an individual dining customer is a B2C transaction and does not require e-invoicing.

Where it applies for restaurants:

• Supplies to corporate clients who are GST-registered and will claim ITC on the invoice
• Catering contracts billed to registered businesses
• Aggregator settlements where the supply is treated as B2B

What e-invoicing requires technically

Your billing software must integrate with the IRP API (directly or through an e-invoice solution provider). The software generates the invoice in the prescribed JSON format, submits it to IRP, receives the IRN and QR code, and embeds both in the printed or digital invoice.

If your current billing system doesn't support this, you need to switch before your turnover crosses the threshold.

Filing Obligations: Monthly and Quarterly

Regular GST registrant (non-composition)

Composition scheme registrant

What happens if you file late?

Late GSTR-1: ₹50/day for regular returns, ₹20/day for nil returns
Late GSTR-3B: ₹50/day + 18% annual interest on unpaid tax
Late GSTR-9: ₹200/day (₹100 CGST + ₹100 SGST), capped at 0.25% of turnover

HSN Codes for Restaurant Operations

HSN (Harmonised System of Nomenclature) codes must appear on all B2B invoices and in GSTR-1. Using wrong HSN codes attracts notices and invalidates a buyer's ITC claim.

The packaged food trap

If your restaurant also sells packaged items — branded snacks, bottled sauces, gift hampers — these attract their own GST rates based on HSN code, separate from the restaurant service SAC 9963. Mixing them under 9963 at 5% is a common error that creates mismatches.

7 Common GST Mistakes Indian Restaurants Make

1. Applying 18% to all AC restaurant sales

As noted above — the AC/non-AC distinction does not change GST rates under the current regime. Most restaurants should be charging 5%.

2. Claiming ITC on 5% sales

You cannot claim ITC if you're taxed at 5%. Claiming it anyway is a direct compliance error that GST officers flag during scrutiny assessments.

3. GSTR-1 and GSTR-3B mismatch

The sales figures declared in GSTR-1 (invoice-wise) must match the aggregate figures in GSTR-3B. Mismatches — even due to rounding or timing differences — generate automated notices.

4. Wrong place of supply for catering

For outdoor catering, the place of supply is where the event takes place, not where your restaurant is registered. Getting this wrong creates inter-state supply complications.

5. Not updating customer GSTINs

If you supply to corporate clients, their GSTIN on your invoice must be correct. Wrong GSTINs invalidate their ITC claim, and you may receive complaints and demands for credit notes.

6. Missing the reverse charge on certain inputs

If you source from unregistered suppliers above a threshold, or purchase certain specified services (like legal services), reverse charge mechanism (RCM) may apply — where you pay GST on the purchase even though the supplier hasn't charged it. This is frequently missed.

7. Not reconciling GSTR-2B before claiming ITC

Claiming ITC that your suppliers haven't reported creates a liability that GST officers recover with interest. Always reconcile before claiming.

How KhanaOS Handles GST at the POS Level

KhanaOS POS is built for Indian restaurant GST compliance from the ground up:

• Applies correct GST rates automatically based on item category (food vs packaged vs alcohol)
• Separates state excise / VAT on alcohol from GST on food on every bill
• Generates GST-compliant tax invoices with GSTIN, HSN/SAC codes, and tax breakdowns
• Exports monthly sales data in GSTR-1-compatible format for your CA or direct filing
• Handles multi-rate billing on a single table (GST food + 18% packaged beverages + state VAT on alcohol)

FAQ

Q: My restaurant is both AC and non-AC sections. Which GST rate applies?

The entire restaurant is treated as one registration. If you have any AC seating, historically there was a distinction — but since the 2018 rationalisation, both are at 5% without ITC. Confirm with your CA, as specific interpretations may vary.

Q: Can I issue a tax invoice at 5% so my corporate customers can claim ITC?

No. If you're taxed at 5% with no ITC, you cannot issue a tax invoice that allows the recipient to claim ITC. The recipient at 5% restaurants can claim a notional ITC only in specific prescribed circumstances. Corporate clients who need full ITC should be made aware that restaurant services at 5% don't generate claimable ITC for them.

Q: Do I need to register for GST if my restaurant turnover is below ₹20 lakh?

Registration is mandatory once aggregate turnover exceeds ₹20 lakh (₹10 lakh in special category states). Below this threshold, GST registration is optional — but restaurants supplying inter-state or operating on aggregator platforms may have different rules.

Q: What if I realise I've been charging the wrong GST rate for months?

Issue credit notes for the difference, file amended returns, and pay the differential tax. Work with a CA immediately — delayed correction attracts interest and penalties. Self-correction before a GST notice is treated more leniently than correction during an audit.

Q: How do I handle GST on complimentary meals or staff meals?

Complimentary meals to customers and staff meals are generally taxable at the standard applicable rate on fair market value. Most restaurants account for this through a periodic journal entry. Your CA can advise on the practical treatment for your scale of operation.

Ready to solve this for your restaurant? KhanaOS generates GST-compliant bills automatically and exports GSTR-1-ready reports — so your accountant gets clean data every month. Start your 7-day free trial → or book a demo →