Restaurant GST Guide 2026: Rates, Input Tax Credit, and Compliance for Indian F&B

GST has been part of Indian restaurant operations since 2017. Yet confusion about applicable rates, ITC eligibility, and filing obligations remains widespread — and errors are expensive.

This guide covers everything a restaurant owner or manager needs to know for 2026 compliance.

GST Rate Structure for Restaurants in 2026

The applicable GST rate depends on your restaurant type and whether you serve alcohol:

Input Tax Credit: Who Can and Cannot Claim It

ITC allows you to offset the GST you pay on business purchases against the GST you collect from customers.

Restaurants at 5% rate: ITC NOT allowed. This is the trade-off for the lower rate. You cannot claim ITC on kitchen equipment, raw materials, packaging, or any other business purchase.

Restaurants at 18% rate (alcohol licence or high-tariff hotel): ITC IS allowed. You can claim credit on ingredients, packaging, kitchen equipment, cleaning supplies, and services used for business.

What this means practically:

• A 5% restaurant collecting ₹500 GST on sales must deposit ₹500 — no offset
• An 18% restaurant collecting ₹900 GST on sales can offset against, say, ₹200 in input GST, depositing only ₹700

The Composition Scheme: Should Your Restaurant Use It?

The composition scheme is available to restaurants with annual aggregate turnover up to ₹1.5 crore (₹75 lakh for some states).

Benefits:

• Simplified compliance — one quarterly return instead of monthly
• Flat 5% GST on turnover, no per-transaction complexity
• Reduced record-keeping burden

Limitations:

• Cannot collect GST from customers (you absorb the 5%)
• Cannot issue tax invoices (only bills of supply)
• Cannot claim ITC
• Cannot sell across state lines (inter-state supply not allowed)
• Cannot supply non-food services

Who should use it: Single-outlet restaurants with annual turnover under ₹1.5Cr, low interstate supplier base, and limited accounting bandwidth.

Who should avoid it: Multi-outlet chains, restaurants supplying to corporate clients who need tax invoices, or businesses planning to scale beyond the threshold.

E-Invoicing: Does Your Restaurant Need It?

E-invoicing requires businesses to generate invoices through the government's Invoice Registration Portal (IRP), which assigns a unique IRN (Invoice Reference Number) and QR code.

Current thresholds (2026):

• ₹5 crore and above aggregate annual turnover: mandatory e-invoicing
• Below ₹5 crore: not mandatory for B2C supplies (restaurant sales to consumers)

Important: E-invoicing applies to B2B supplies. If you supply to corporate clients who claim ITC, those invoices must be e-invoiced if your turnover crosses the threshold.

For most single-outlet restaurants serving individual diners, e-invoicing is not required. For cloud kitchens or chains supplying to aggregators or corporates at scale, verify with your CA.

Monthly and Quarterly Filing: What You Need to File

For regular (non-composition) registrants:

For composition scheme registrants:

Common filing mistakes in restaurants:

1. Mismatch between GSTR-1 and GSTR-3B — sales reported in 3B don't match invoices in GSTR-1
2. Declaring wrong HSN codes — food items have specific HSN codes; mixing them causes notices
3. Missing the 11th — late GSTR-1 attracts ₹50/day penalty (₹20 for nil return)
4. Incorrect place of supply — relevant for catering, outdoor events, hotel restaurants

HSN Codes for Common Restaurant Items

Practical Compliance Checklist for Restaurant Owners

Monthly:

• Reconcile POS sales data with GSTR-1 before the 11th
• Verify supplier invoices are GST-compliant (GSTIN, HSN, rate)
• Pay GST via GSTR-3B by the 20th
• Check GSTR-2B for ITC claims (if applicable)

Quarterly:

• Review HSN-wise turnover for accuracy
• Verify employee and contractor payments for any RCM liability
• Check for any GST notices or mismatches in GST portal

Annually:

• File GSTR-9 before 31st December
• Reconcile books of accounts with GST returns
• Review composition scheme eligibility if close to ₹1.5Cr threshold

How KhanaOS Helps with GST Compliance

KhanaOS POS automatically:

• Applies correct GST rates based on item category and restaurant type
• Splits food and beverage (alcohol) correctly on every bill
• Generates GST-compliant bills with GSTIN, HSN codes, and tax breakdowns
• Exports GSTR-1-ready reports for your CA or direct filing
• Handles multi-rate menus (5% food + 18% packaged items on the same bill)

Your accountant gets clean data. You avoid mismatches.

KhanaOS billing exports directly to GSTR-1 format. See the billing module →