GST on Restaurant and Food Services: Rates and ITC Rules 2026

Running a restaurant in India means GST is not optional reading. The GST on restaurant services in India operates on a split-rate structure: standalone restaurants pay 5% GST without Input Tax Credit, while hotel restaurants with room tariffs above ₹7,500 per night pay 18% GST with ITC. This divide, introduced through Notification No. 11/2017-Central Tax (Rate) dated 28 June 2017 and revised by Notification No. 46/2017-CT (Rate) dated 14 November 2017, has held steady through multiple GST Council meetings. Whether you own a standalone cafe, a hotel F&B outlet, a cloud kitchen, or a catering business, the applicable rate, ITC eligibility, composition scheme options, and return filing rules differ significantly, and getting them wrong leads to notices, penalties, and interest charges.

GST on Restaurant Services: Legal Framework and Scope

GST on restaurant services is levied under Chapter 99 of the GST Rate Schedule, specifically under heading 9963 (Accommodation, Food and Beverage Services), governed by the Central Goods and Services Tax Act, 2017. Restaurant services are classified as services, not goods, which is why SAC codes apply instead of HSN codes. The 23rd GST Council meeting in November 2017 was a watershed moment: it abolished the earlier AC-vs-non-AC distinction, removed the 12% and 18% rates for most restaurants, and standardised the rate at 5% for standalone eateries.

The scope of "restaurant service" under GST is broad. It covers dine-in meals, take-away orders, delivery directly from the restaurant, food served in canteens and messes, and food supplied by clubs, campsites, and similar establishments. What it does not cover: alcoholic beverages (subject to state excise duty), packaged and labelled branded food items sold separately (treated as goods with their own GST rates), and outdoor catering (a separately classified service at 18%).

GST Rates for Different Types of Restaurants in 2026

The rate that applies to your restaurant depends on where you operate, not what you serve. Here is the complete rate structure effective for 2025-26:

Standalone Restaurants: The 5% Rule

A standalone restaurant is any eating establishment that does not have an attached hotel, inn, guest house, or commercial lodging facility. This category covers the vast majority of restaurants in India: neighbourhood dhabas, quick-service restaurants, cafes, bakeries with a sit-down section, food courts inside malls, and company canteens. All of these pay 5% GST on food and non-alcoholic beverages, split as 2.5% CGST and 2.5% SGST. Crucially, claiming ITC on kitchen supplies, raw materials, utilities, or packaging is not permitted at this rate. The 5% rate is designed to keep restaurant bills affordable for consumers and to simplify bookkeeping for operators, but the trade-off is a permanent ITC block.

Restaurants in Hotels: When 18% Applies

For restaurants attached to hotels, the applicable GST rate is determined entirely by the declared room tariff of the hotel, not by the food price or the ambience of the restaurant. The threshold is ₹7,500 per unit per day. If the hotel has even one room category with a declared tariff at or above ₹7,500, every rupee billed at the attached restaurant attracts 18% GST. This is not a blended calculation: the rule applies to the full restaurant bill. The benefit of the 18% tier is meaningful for large hotel chains: full ITC eligibility on food ingredients, kitchen equipment, laundry for restaurant linen, and other input services directly used in the restaurant.

SAC Code 9963: What Restaurant Services Are Covered?

SAC code 9963 is the primary Service Accounting Code under the GST framework for all accommodation, food, and beverage services. Unlike goods taxed using HSN codes, restaurant services are coded under the SAC system because they are classified as services under Indian GST law. The SAC breakdown within 9963 relevant for restaurants is as follows:

• 996311: Restaurant and café services including services by air-conditioned restaurants with liquor licence
• 996312: Restaurant and café services (non-AC, no liquor licence)
• 996313: Hotel, inn, and guesthouse food and beverage services
• 996314: Canteen and similar services at company or institutional premises
• 996315: Services provided by juice bars and similar beverage-only establishments
• 996316: Food delivery and take-away services by restaurants
• 996334: Outdoor catering services (banquets, event catering, wedding catering)

The correct SAC code must appear on every tax invoice issued by the restaurant. Using an incorrect SAC code is a documentation error that can attract scrutiny during GST audits and departmental inspections. Based on our experience processing GST registrations for restaurant businesses across India, one of the most frequent errors we see is restaurants using generic SAC codes (like 9999) instead of the specific 9963 sub-code that matches their service type.

Input Tax Credit Rules for Restaurants Under GST

ITC is the mechanism that lets businesses offset the GST they paid on inputs against the GST they collect from customers. For restaurants, the ITC position depends entirely on the rate they charge.

Standalone restaurants operating at 5% GST cannot claim ITC on any input: raw food materials, packaging, cooking equipment, electricity, or professional services used in operations. This restriction is a built-in condition of the 5% rate under Notification No. 11/2017-CT (Rate). The legal language reads "provided that credit of input tax charged on goods and services used in supplying the service has not been taken." This means the 5% rate and ITC eligibility are mutually exclusive for restaurants.

Hotel restaurants charging 18% GST can claim ITC on all inputs and input services used in providing restaurant services: food ingredients, beverages purchased for resale, kitchen equipment and repairs, laundry services for restaurant uniforms and linen, and utilities directly attributable to the restaurant. However, ITC on construction of the restaurant premises or civil works is restricted under Section 17(5)(d) of the CGST Act, even at the 18% tier.

Read our detailed guide on GST Input Tax Credit rules and how to claim ITC correctly for a full breakdown of eligible and blocked credits.

GST Composition Scheme for Restaurants: Should You Opt In?

The GST composition scheme under Section 10 of the CGST Act, 2017 is a simplified compliance option for smaller restaurant businesses. Instead of filing monthly returns and tracking ITC, composition dealers pay a flat 5% of their adjusted annual turnover (2.5% CGST plus 2.5% SGST) and file returns quarterly. The trade-off is a set of restrictions that many growing restaurants find limiting.

Eligibility is based on aggregate annual turnover not exceeding ₹1.5 crore in the preceding financial year. For restaurants located in special category states (Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Uttarakhand, and Himachal Pradesh), the limit is ₹75 lakh.

The composition scheme works well for neighbourhood restaurants, small-town dhabas, and canteens with stable local customer bases that do not use food aggregator apps. If your restaurant plans to list on Zomato or Swiggy, grow beyond ₹1.5 crore, or expand to multiple states, the regular GST scheme is the correct path. The compliance simplification of the composition scheme comes at the cost of business flexibility.

Outdoor Catering vs Restaurant Service: The GST Distinction

Outdoor catering is not the same as restaurant takeaway, and the GST rates reflect that. Outdoor catering services are classified separately under SAC code 996334 and attract 18% GST with ITC allowed. This applies to catering businesses that supply food at a location outside their own premises: weddings, corporate events, film shoots, sports venues, and residential parties. The 18% rate with ITC gives catering businesses the ability to offset the considerable input costs involved in large-scale food preparation and transportation.

The distinction matters when a restaurant doubles as a caterer. If a restaurant sends food to an event venue, that supply is taxable at 18% as outdoor catering, not at 5% as restaurant service. The same kitchen, the same chef, but the moment food leaves the registered premises for a client's location, the classification and rate change. Misclassifying outdoor catering as restaurant service (and charging 5% instead of 18%) is a common audit finding and creates a tax shortfall that the business must cover, with interest.

Regular catering at company premises, institutional canteens, or factory canteens, where the caterer supplies food at the client's fixed location on a recurring basis, also falls under this 18% category per Notification No. 11/2017-CT (Rate).

Cloud Kitchens and GST: How Dark Kitchens Are Taxed

Cloud kitchens, also called dark kitchens or ghost kitchens, are food production facilities with no dine-in option. They prepare food exclusively for delivery, either through their own app, website, or third-party platforms like Zomato and Swiggy. From a GST standpoint, a cloud kitchen is treated as a restaurant service provider under SAC code 9963.

The applicable rate for a cloud kitchen is 5% GST without ITC, the same as a standalone restaurant. The absence of tables and chairs does not change the classification: the key test is whether the business is supplying food as a service, and cloud kitchens clearly are. Cloud kitchens must obtain GST registration once turnover exceeds ₹20 lakh and must raise tax invoices for direct sales or bill of supply if opting for composition.

The more nuanced aspect for cloud kitchens is the Section 9(5) implication. When a cloud kitchen sells through Zomato or Swiggy, the e-commerce operator is liable to pay GST on the supply. This means the cloud kitchen does not pay GST on platform-based orders; Zomato or Swiggy handles the deposit. However, the cloud kitchen must still be GST-registered and must include platform orders in its aggregate turnover for registration threshold and annual return purposes.

Zomato, Swiggy, and GST: Section 9(5) Changes the Rules

The most significant change to restaurant GST in recent years came not from a rate revision, but from a liability shift. From 1 January 2022, the Central Government activated Section 9(5) of the CGST Act, 2017 for restaurant services via Notification No. 17/2021-Central Tax (Rate) dated 18 November 2021. The result: e-commerce operators (ECOs) like Zomato and Swiggy are now directly liable to pay GST on restaurant services supplied through their platforms, at the rate of 5% (no ITC).

Before this change, each restaurant on the Zomato or Swiggy platform was separately liable for GST on orders placed through the app. Compliance was fragmented, and small restaurants found it difficult to track and remit GST accurately. The Section 9(5) shift centralised the liability at the aggregator level, making compliance simpler for restaurants while ensuring the government receives GST on every order.

Additionally, separate from Section 9(5), Section 52 of the CGST Act requires ECOs to collect Tax Collected at Source (TCS) at 1% (0.5% CGST plus 0.5% SGST) on the net value of all other taxable supplies made through their platform. This TCS can be credited by the restaurant against its own GST liability using the certificate from the ECO. Restaurants should monitor their GST ledger monthly to ensure TCS credits from Zomato and Swiggy are properly reflected.

If you receive a GST notice related to misclassification of platform-based restaurant sales, addressing it promptly with correct documentation of the ECO liability is essential to avoid penalty escalation.

GST on Service Charges: The Tax Hidden in Your Bill

Service charge is a levy that restaurants add to the bill voluntarily as compensation for the service provided, separate from food prices. Under Section 15 of the CGST Act, 2017, the value of supply includes all amounts charged by the supplier from the recipient, which means service charge forms part of the taxable value for GST purposes.

The practical result: if a restaurant charges 10% service charge on a ₹1,000 food bill, the taxable value for GST is ₹1,100 (food plus service charge), and 5% GST applies to the full ₹1,100, yielding a GST amount of ₹55 rather than ₹50. Restaurants that levy service charge but calculate GST only on the food amount are understating their tax liability.

The Central Consumer Protection Authority (CCPA) issued guidelines in July 2022 that hotels and restaurants cannot levy service charge by default or automatically and must not include it in bills without explicit customer consent. However, if a customer agrees to pay service charge and it is collected, it is subject to GST at the applicable restaurant rate. The CCPA guidelines govern consumer rights; they do not change the GST treatment of amounts actually collected.

GST Return Filing and Compliance Calendar for Restaurants

Understanding which returns to file, and when, is non-negotiable for restaurant owners. A missed return filing attracts late fees of ₹50 per day per return (₹25 CGST plus ₹25 SGST), capped at ₹5,000 per return, and continued non-filing results in GST portal access restrictions and potential cancellation of registration.

Here is the complete compliance calendar for restaurants:

Restaurants enrolled under the QRMP (Quarterly Return Monthly Payment) scheme file GSTR-1 quarterly but pay GST monthly using challan PMT-06 by the 25th of each month. This reduces the return filing frequency without creating a cash flow mismatch. Restaurants with aggregate turnover up to ₹5 crore are eligible for QRMP.

Beyond returns, restaurants must ensure their GST registration reflects all additional places of business (multiple branches), correct business categories, and current contact details. Changes to business address, management, or bank accounts require a GST amendment to be filed promptly to avoid mismatches during automated GSTR reconciliation.

For a full breakdown of late fee structures and penalty consequences, read our guide on GST late fees and penalties applicable for 2025-26.

5 Common GST Mistakes Restaurant Owners Make

Managing GST for a restaurant is not complicated if you know the rules, but these five errors come up repeatedly in compliance audits and GST notices:

1. Charging 5% but claiming ITC on inputs: This is the most common mistake. Restaurants under the 5% standalone rate cannot claim ITC on any input. Claiming ITC on kitchen equipment purchases, utility bills, or food ingredients while filing at 5% creates a mismatch in GSTR-2B that triggers auto-scrutiny notices from the GST department.
2. Not updating the hotel room tariff when rates change: Hotel restaurants must review the applicable GST rate every time the hotel revises its declared tariff. A hotel that crosses the ₹7,500 threshold mid-year must switch from 5% to 18% from the effective date of the tariff revision. Failing to update the GST rate during seasonal tariff changes leads to tax shortfalls and potential penalties under Section 122 of the CGST Act.
3. Composition dealers listing on Zomato or Swiggy: Section 10(2)(d) prohibits composition dealers from supplying through e-commerce operators. Restaurants that list on Zomato while paying tax under the composition scheme violate this restriction and lose composition status retrospectively, facing demands for regular GST plus interest and penalties on all past supplies.
4. Excluding service charge from the GST base: Service charge collected from customers is part of the taxable value of supply under Section 15 of the CGST Act. Restaurants that calculate GST only on the food portion and exclude service charge are consistently underpaying tax.
5. Incorrect SAC code on invoices: Using a generic SAC code or the wrong sub-code (such as 996339 for restaurant services instead of 996311 or 996312) creates classification issues in GSTR-1 and can complicate audit responses. The SAC code on the tax invoice must match the nature of the service supplied and the code registered in the GST portal.

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GST on Restaurant Services: Summary

The GST on restaurant services in India follows a clear split: 5% without ITC for most restaurants and 18% with ITC for hotel restaurants where declared room tariff exceeds ₹7,500 per night. Outdoor catering is taxed at 18% with ITC regardless of hotel attachment. Cloud kitchens follow the same 5% restaurant treatment, and aggregator-based sales on Zomato and Swiggy have their GST paid directly by the ECO under Section 9(5) of the CGST Act from 1 January 2022. Restaurants with turnover up to ₹1.5 crore can simplify compliance through the composition scheme at a flat 5% of turnover, subject to restrictions on interstate supply and e-commerce sales. Getting the rate, ITC position, and return filing right is the foundation of GST compliance for any food service business.