GST Composition Scheme for Restaurants: Rate, Turnover Limit and Rules

GST Rates for Restaurant Services

The table below provides a comprehensive overview of the applicable GST rates for different types of restaurants and food-related services in India. Below are the GST rates for restaurant bills.

Latest update: Effective from 1 April 2025

Restaurant service outside specified premises continues to be taxed at 5% without ITC. Restaurant service at specified premises is taxed at 18% with ITC.

A hotel property is treated as specified premises if accommodation above ₹7,500 per unit per day was supplied there during the previous financial year, or if an eligible hotel supplier opts in. Notification 15/2025-Central Tax (Rate) clarifies that the premises must be a place from which hotel accommodation is supplied. Therefore, a standalone restaurant cannot opt for the 18% rate on its own.

Restaurants under the composition scheme are not affected by this change and continue to pay 5% on turnover without ITC.

GST Rates on Restaurants and Food Items

GST on restaurants and food can be confusing because restaurant service and sale of food items as goods are taxed differently. Restaurants usually charge a single GST rate on the full bill value, while packaged food, sweets, bakery items or branded grocery products follow the general GST rate structure for goods.

For CAs and restaurant owners, it is important to separate clearly:

• GST on restaurant services (dine in, takeaway, delivery)
• GST on packed or branded food products
• Rates that apply when food is supplied under catering or hotel services

GST Rate on Restaurants

Understanding restaurant’s GST rates is crucial for business owners and customers. The Goods and Services Tax (GST) simplifies the taxation process, but it’s essential to know the specific rates that apply to different types of restaurants.

Standard GST Rate for Restaurants

• Restaurant service outside specified premises is generally taxed at 5% without ITC, whether the restaurant is air-conditioned or not.
• Restaurant service at specified premises is taxed at 18% with ITC.
• Outdoor catering may be taxed at 5% or 18%, depending on whether the supplier and service are covered by the specified-premises rules.

GST Rate on Food Items

After GST was introduced, food products became subject to different rates depending on their type and how they are supplied. Fresh fruits, vegetables and cereals are generally exempt, while packaged foods, branded snacks, sweets and ready-to-eat products may attract different rates based on their GST classification. Food supplied as a restaurant service, including takeaway orders, is generally taxed at 5% without ITC when supplied outside specified premises. Restaurant service at specified premises is taxed at 18% with ITC.

GST vs VAT: Tax Impact on Restaurant Owners

Before GST, restaurant owners had to deal with multiple taxes like VAT and service tax, which varied across states. With GST, the tax system is unified, making compliance easier. Under GST, restaurants not serving alcohol are taxed at 5%, simplifying billing. However, one downside for restaurant owners is that they cannot claim input tax credit under this 5% slab, increasing costs. Under VAT, some restaurants could claim input credits, making GST less beneficial for certain businesses. Nevertheless, GST has streamlined tax collection, reducing disputes and errors.

GST Composition Scheme Rules For Restaurants

Restaurants must comply with the composition scheme’s requirement to charge GST at a special rate of 5% of turnover, subject to the following limitations.

• The restaurant must remain within the turnover limit for the composition scheme.
• Should only work in restaurants (a special exemption has been made for services like interest and exempt services).
• Restaurants are unable to produce goods for interstate export.
• Cannot provide any goods that are not GST-taxable, such as alcohol.
• Restaurant orders may be accepted through an e-commerce platform when they are covered by Section 9(5). The platform pays GST on those restaurant-service orders.
• There is no input tax credit available to restaurants.
• They cannot collect taxes from the customer.

How aggregate turnover is counted

When checking eligibility, combine the turnover of all GST registrations under the same PAN across India. This includes taxable and exempt supplies, exports and inter-state supplies. GST and purchases on which tax is paid under reverse charge are not included.

If turnover crosses the applicable limit during the financial year, the composition option ends from that day.

Who Can Opt For GST Composition Scheme For Restaurants

The GST composition scheme for restaurants is mainly meant for small local eating places that want simple compliance and a fixed tax rate.

In simple words, a restaurant can opt for the composition scheme when

• Aggregate turnover in the preceding financial year must not exceed ₹1.5 crore. The lower ₹75 lakh limit applies in Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura and Uttarakhand.
• The main activity is running a restaurant or similar food service
• The restaurant is not serving alcohol for human consumption
• The restaurant is not making inter state outward supplies of food or drinks
• When a restaurant chooses the composition scheme
• It pays tax at five percent on its turnover
• It cannot claim input tax credit on its purchases
• It cannot collect tax separately from customers and has to pay tax out of the price it charges

All eligible GST registrations under the same PAN must opt for the composition scheme together.

How to opt for the composition scheme and file returns

A new restaurant can choose the composition scheme while applying for GST registration through FORM GST REG-01. A restaurant that is already registered under the regular scheme must submit FORM GST CMP-02 before the new financial year begins. It must then submit FORM GST ITC-03 within 60 days to report and reverse the eligible input tax credit on its stock.

After joining the scheme, the restaurant reports and pays its tax every quarter through FORM GST CMP-08. This is normally due by the 18th of the month following the quarter. It must also file the annual FORM GSTR-4 by 30 June following the end of the financial year.

If the restaurant no longer qualifies for the scheme, it must submit FORM GST CMP-04 within seven days. If it chooses to leave the scheme voluntarily, it must submit CMP-04 before the date on which it wants to leave.

How Composition Scheme Impacts Restaurant Billing and Menu Pricing

The composition scheme changes the way a restaurant raises bills and plans its menu prices.

From the restaurant side

• A composition restaurant does not issue a tax invoice. It issues a bill of supply
• The bill of supply must clearly carry a line such as
  composition taxable person, not eligible to collect tax on supplies
• The restaurant pays tax at five percent on its total turnover, but it cannot show GST separately on the bill

This means the restaurant has to build the tax cost into the menu prices. When it fixes the price of a dish, it should keep in mind that a part of that price will later go as GST out of its own margin.

From the customer side

• The bill usually does not have a separate GST line or percentage for food items
• The customer cannot claim input tax credit on such bills, because the supplier is under the composition scheme
• The phrase related to composition taxable person on the bill and on the signboard helps customers know that GST is already included in the price

For this reason, many composition restaurants keep their price list simple and clear. They also review prices from time to time to make sure the fixed rate on turnover does not reduce their profit margin.

Pros and Cons of Composition Scheme for Restaurants

The composition scheme has both advantages and limitations for restaurants. Owners should see both sides before they decide.

Main benefits

• Simple tax calculation, as tax is charged at a flat rate on turnover
• Less paperwork and fewer return forms as compared to the normal scheme
• No need to show GST separately on every bill, which keeps billing and menu cards simple
• Helpful for small local restaurants that have mostly cash or digital retail customers and do not deal much with business clients who want input tax credit

Main limitations

• No input tax credit is available on purchases of food, beverages, equipment or other inputs
• The restaurant cannot collect tax separately from customers, so the tax must come from the selling price and can reduce the margin
• Inter state outward supplies are not allowed, so the business stays limited to one state
• Online sales of packaged goods or other items that are not treated as restaurant service may follow different GST rules.
• Once turnover grows beyond the limit, the restaurant has to move to the normal scheme and follow higher compliance

For very small and local restaurants, the simple process and lower effective rate can be attractive. For larger restaurants with big input costs or many business customers, the regular scheme with input tax credit can be more useful in the long run.

Identify Restaurants Under the Composition Scheme

• Restaurants that choose the composition scheme must state at the top of the bill of supply, “Composition taxable person, not eligible to collect tax on supplies.
• Every notice or signboard prominently displayed at their place of business must also include a description of the words that comprise the phrase “taxable person.”

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Why Understanding GST Rates Matters?

Knowing the applicable GST rates helps restaurant owners price their menus correctly and ensures they comply with tax regulations. Understanding these rates allows customers to see the tax component in their bills.

Business owners and patrons can more effectively navigate the taxation landscape by tracking the restaurant GST rate and the composition scheme.

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Benefits To Restaurants Under GST

• Need to be compliant with only one law instead of multiple laws
• Pastry manufacturing excise, lodging and restaurant service tax, restaurant VAT, opulence rental tax, and entertainment tax on ticketed events.
• Allowed to claim credit for GST paid for procurements
• Before GST, restaurant operators could not claim credit for entry tax paid on machinery, CST paid on interstate purchases, excise paid on furniture purchases, or CST paid on packaged food sales. In the case of GST, all taxes paid on such purchases are creditable unless they are required to pay taxes at a reduced rate.
• 5% composition & tax payment plan options are available if the turnover is less than ₹1.5 crores.
• 5% concessional rate (but input tax credit is not available)
• Credit for outdoor catering or food, but only when used in a business line similar to restaurants.

Conclusion

The GST on restaurant food under the GST composition scheme can be complex and requires careful consideration of various factors. While the scheme can offer certain benefits for small restaurants, it may not be suitable for all businesses in this sector. Therefore, it is essential to seek professional advice and assess the specific requirements and circumstances of the restaurant business before opting for the GST composition scheme.

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