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JASMINE KAUR HUDA

Chartered Accountant

Published on: Apr 24, 2026

Restaurant GST at 5%: Charges, Rules & Compliance Guide for 2026

One of the key aspects of food businesses and their customers is the Goods and Services Tax (GST) assigned to restaurants in India. Consumers often see a 5% GST applied to their bill when dining at restaurants, but there are significant changes to how GST is calculated and assessed as of 22 September 2025 and therefore, restaurant owners need to be aware of these new regulations.

GST Rate for Restaurants in India

Most stand-alone restaurants in India continue to charge 5% GST on food and beverage services. This generally applies to:

  • Dine-in services
  • Takeaway orders
  • Parcel services
  • Home delivery orders
  • Cafes and fast-food outlets
  • Cloud kitchens (subject to applicable rules)

No Input Tax Credit (ITC) at 5%

Restaurants charging GST at 5% are not eligible to claim Input Tax Credit (ITC). This means GST paid on business expenses such as:

  • Raw materials
  • Kitchen equipment
  • Rent
  • Packaging material
  • Interiors and furniture
  • Professional services

cannot be adjusted against output GST liability.

Because of this, many restaurants include these costs in menu pricing.

Important Change After 22 September 2025

A major clarification was issued regarding restaurants opting for higher GST rates.

Stand-Alone Restaurants Cannot Opt for 18% GST with ITC

It was clarified that stand-alone restaurants cannot voluntarily classify themselves as ā€œspecified premisesā€ merely to charge 18% GST and claim ITC.

This means:

  • Regular stand-alone restaurants must continue under 5% GST without ITC
  • They cannot choose 18% GST with ITC simply for tax planning
  • Any earlier confusion on optional higher-rate taxation was removed

Restaurants in Hotels ā€“ Separate Rules May Apply

Restaurants located inside eligible hotel premises may continue to have different GST treatment depending on the classification of the hotel as specified premises under GST rules.

Such cases depend on factors like:

  • Declared room tariff / value criteria
  • Hotel classification
  • Nature of restaurant supply

A separate review is recommended for hotel restaurants.

Example of 5% GST Calculation

If a customer receives a bill of ā‚¹2,000:

  • Food Value: ā‚¹2,000
  • GST @5%: ā‚¹100
  • Total Bill: ā‚¹2,100

GST vs Service Charge

Customers often confuse GST with service charge.

  • GST is a statutory tax payable to the Government.
  • Service charge is separate and subject to applicable consumer rules.

Both should be shown separately on the bill.

Impact on Restaurant Owners

The 5% GST regime benefits customers through lower visible tax rates. However, restaurant owners face higher operating costs because ITC is unavailable.

Therefore, restaurant owners should focus on:

  • Proper pricing strategy
  • Cost control
  • Vendor negotiations
  • Timely GST compliance
  • Correct billing practices

Compliance Requirements

Restaurants should ensure:

  • GST registration where applicable
  • Correct tax invoices
  • Timely filing of GSTR-1 and GSTR-3B
  • Proper turnover reporting
  • Correct classification of restaurant vs catering income
  • Maintenance of books and records

Conclusion

Even after 22 September 2025, most regular restaurants in India continue under 5% GST without ITC. The key update is that stand-alone restaurants cannot opt for 18% GST with ITC by self-classification.

Restaurant owners should review their business structure carefully, especially where hotel premises or mixed services are involved, to avoid future GST disputes and notices.

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