The restaurant and hospitality industry in India operates under one of the most distinctive and widely misunderstood GST structures. Unlike ordinary businesses that collect GST and claim full Input Tax Credit (ITC) on all expenses, standalone restaurants are locked into a mandatory 5% GST rate with strict denial of ITC.
Furthermore, with the introduction of Section 9(5) liability on food delivery platforms like Swiggy and Zomato, along with the exclusion of alcoholic liquor from GST, restaurateurs must manage complex dual-taxation regimes and menu reconciliations.
In this guide, we break down the restaurant GST framework, explain the hotel room tariff threshold, cloud kitchen rules, and how to stay fully compliant.
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The Master Restaurant GST Matrix
| Restaurant Type | Declared Room Tariff (if in hotel) | GST Rate | ITC Eligibility | SAC Code |
|---|---|---|---|---|
| Standalone Dine-in Restaurant (AC or Non-AC) | Not Applicable | 5% (2.5% CGST + 2.5% SGST) | NO ITC allowed | 996331 |
| Cloud Kitchens / Takeaway / Fast Food | Not Applicable | 5% (2.5% CGST + 2.5% SGST) | NO ITC allowed | 996331 |
| Restaurant inside Hotel (Room Tariff < ₹7,500/night) | Below ₹7,500 per unit per day | 5% (2.5% CGST + 2.5% SGST) | NO ITC allowed | 996332 |
| Restaurant inside Luxury Hotel (Room Tariff ≥ ₹7,500/night) | ₹7,500 or more per unit per day | 18% (9% CGST + 9% SGST) | FULL ITC allowed | 996332 |
| Outdoor Catering Services (Standalone) | Not Applicable | 5% | NO ITC allowed | 996334 |
| Outdoor Catering in Specified Premises (Tariff ≥ ₹7,500) | ₹7,500 or more per unit per day | 18% | FULL ITC allowed | 996334 |
The “No-ITC” Trap: Why Restaurant Margins Suffer
While consumers celebrate paying only 5% GST instead of the standard 18%, this rate comes with a severe statutory trade-off for restaurant owners: Section 17(5) prohibits claiming any Input Tax Credit.
What This Means in Practice:
- Commercial Kitchen Equipment: 18% GST paid on ovens, refrigeration, and stoves cannot be claimed back.
- Shop / Mall Rent: 18% GST charged by landlords on commercial leases cannot be offset against your 5% collection.
- Packaging & Raw Materials: GST paid on takeaway containers, spices, oils, and dairy is an outright business expense.
- Franchise Royalty & Marketing: 18% GST paid on brand royalties or marketing agencies must be absorbed from gross profits.
As a result, the effective tax incidence on a restaurant business often exceeds 12%–14% when factoring in embedded uncredited input taxes.
Food Aggregators (Swiggy / Zomato) & Section 9(5)
Under Notification No. 17/2021-Central Tax (Rate) issued under Section 9(5) of the CGST Act, e-commerce operators (Swiggy, Zomato, Magicpin) are statutorily responsible for collecting and paying the 5% GST on restaurant services delivered through their platforms.
How Billing & Invoicing Works:
- Aggregator Delivery Order: When a customer orders food via Swiggy/Zomato, the aggregator charges 5% GST to the end-consumer and deposits this 5% directly to the government under their own GSTIN.
- Restaurant GSTR-1 Reporting: The restaurant reports these online sales in Table 8 of GSTR-1 (Supplies made through e-commerce operators under Section 9(5)). The restaurant does not pay tax on this turnover in GSTR-3B, preventing double taxation.
- Delivery Fee & Commission Invoices: Swiggy/Zomato separately issues a B2B tax invoice to the restaurant charging 18% GST on platform commission and delivery charges. (Remember: The restaurant cannot claim ITC on this 18% fee).
Alcohol for Human Consumption: The Dual Tax Structure
Article 366(12A) of the Constitution of India strictly excludes alcoholic liquor for human consumption from the scope of GST. It remains under State Excise and State VAT.
Rules for Resto-Bars & Pubs:
- Food & Non-Alcoholic Drinks: Billed with 5% GST (no ITC).
- Beer, Wine & Spirits: Billed with State VAT (typically 10% to 25% depending on state laws like Karnataka VAT, Maharashtra VAT, or Delhi Excise).
- Single Composite Bill: A restaurant can issue a single itemized bill showing food items under 5% GST and liquor items under State VAT. The accounting system must maintain separate ledgers to file GSTR-3B for food and state VAT returns for liquor.
Frequently Asked Questions (FAQs)
Can a standalone restaurant voluntarily charge 18% to claim ITC?
No. The 5% rate without ITC is a mandatory statutory rate for standalone restaurants under Notification No. 11/2017-Central Tax (Rate) as amended. You do not have the legal option to elect 18% with ITC unless your restaurant is located inside a hotel premises where declared unit room accommodation charges equal or exceed ₹7,500 per day.
Is service charge subject to GST?
Yes. If a restaurant includes a discretionary “service charge” (separate from government service tax/GST) on the invoice, that service charge forms part of the taxable transaction value under Section 15(2) of the CGST Act and is subject to 5% GST. Note that under CCPA guidelines, levying mandatory service charges without customer consent is prohibited.