1. The Foundation: Rates, SAC Codes & The AC Myth
Under Indian tax legislation, the preparation and serving of food or beverages is classified as a composite supply of services under Schedule II, Paragraph 6(b) of the Central Goods and Services Tax (CGST) Act. The statutory Service Accounting Code (SAC) governing this supply is SAC 996331 (Restaurant and catering services).
For more than 95% of food service establishments across the country, the applicable tax rate is straightforward:
- Total Food GST: 5.0%
- Central GST (CGST): 2.5%
- State / UT GST (SGST): 2.5%
- Input Tax Credit (ITC): 0% (Strictly blocked under Notification 46/2017 Central Tax Rate)
This 5% rate applies identically whether the customer is dining at a table, carrying food away in a parcel from your counter, or ordering delivery to their residence. The tax follows the commercial classification of the kitchen, not the physical location where the meal is consumed.
Between July 2017 and November 2017, the initial GST framework imposed an 18% tax on air-conditioned restaurants and a 12% tax on non-air-conditioned restaurants. The GST Council eliminated this split in November 2017 (via Notification 46/2017), establishing a flat 5% rate for all standalone restaurants. If an online billing guide or POS vendor claims that turning on an air conditioner increases your tax rate, they are relying on statutory provisions that were abolished nearly a decade ago.
2. When Does 18% Apply? The "Specified Premises" Hotel Threshold
The primary statutory exception where restaurant dining attracts 18% GST (with full Input Tax Credit)concerns dining rooms operating within high-tariff hotels.
For several years, this threshold was determined by the hotel room's "declared tariff" of ₹7,500 per day. Hotels frequently manipulated this rule by declaring rack rates above ₹7,500 while selling rooms online for ₹3,500, enabling their fine-dining restaurants to claim millions in input tax credits on interior buildouts.
A hotel or guest house is classified as a "specified premises" for an entire financial year if any room or unit of accommodation was supplied at an actual transaction value exceeding ₹7,500 per night at any time during the preceding financial year. Below this empirical threshold, all dining outlets located within the hotel charge the standard 5% rate without Input Tax Credit.
The Standalone Restaurant Lockout
Many independent restaurant owners with high capital expenditures (such as microbreweries investing ₹3 Crores in imported fermentation tanks or fine-dining bistros paying ₹6 Lakhs monthly commercial rent) have requested permission to voluntarily pay 18% GST so they can claim Input Tax Credit on their equipment and leases.
The GST Council clarified this rule: a standalone restaurant cannot opt into the 18% regime. The 5% rate without ITC is mandatory for standalone food outlets. The 18% rate is legally restricted to verified specified premises hotels.
3. The Dual-Taxation Tightrope: Splitting Food GST and State Liquor VAT
The most complex compliance challenge in Indian hospitality occurs at pubs, microbreweries, and dining bars. When a guest orders a wood-fired pizza and two craft beers, their single receipt bridges two constitutionally separate taxation regimes.
Under Article 366(12A) of the Constitution of India, alcoholic liquor for human consumption was intentionally excluded from the definition of Goods and Services Tax. State governments retained exclusive sovereignty over alcohol taxation, levying State Excise Duties and State Value Added Tax (VAT).
| State / Union Territory | State Liquor VAT Rate | Food Tax Rate | Billing Separation Mandate |
|---|---|---|---|
| Karnataka | 18.5% State VAT | 5% GST (2.5% + 2.5%) | Mandatory distinct subtotal lines on POS receipt |
| Maharashtra | 20.0% State VAT | 5% GST (2.5% + 2.5%) | Strict separation under MVAT Act and CGST Act |
| Delhi (NCT) | 25.0% State VAT | 5% GST (2.5% + 2.5%) | Excise barcode verification required on invoice |
| Telangana | 35.0% State VAT | 5% GST (2.5% + 2.5%) | High-bracket state excise surcharge applied |
| Goa | 22.0% State VAT | 5% GST (2.5% + 2.5%) | Hospitality concession structure for licensed bars |
| West Bengal | 30.0% State VAT | 5% GST (2.5% + 2.5%) | Dual tax invoice sequence registered with state |
Because liquor VAT sits outside GST, a bar cannot offset the VAT paid on commercial liquor purchases against its food GST liabilities, nor can it claim input credit for excise duties built into wholesale bottle costs. Excise and liquor VAT must be treated as a direct component of raw pour cost rather than a balance-sheet pass-through.
4. Service Charges, Packaging & Bottled Goods: Mandatory Tax Math
Does the Service Charge Attract GST?
Yes. While the consumer legality of voluntary service charges continues to be debated in High Courts, the tax treatment is completely settled under statutory tax law.
Under Section 15(2)(c) of the CGST Act, the value of supply includes "incidental expenses, including commission and packing, charged by the supplier to the recipient." Because a service charge is an additional fee levied for the overall dining experience, it is added to the taxable subtotal before computing the 5% food GST. You cannot levy a service charge tax-free.
Container and Packaging Fees on Parcel Orders
When a restaurant charges ₹30 to ₹50 for plastic containers, tamper-evident tape, or thermal paper bags on takeaway orders, that packaging fee is classified as an ancillary supply bundled with the principal service of providing cooked food. Consequently, packaging fees attract the identical 5% restaurant GST rate, not the 18% rate that applies to standalone plastic manufacturing.
Packaged MRP Goods Sold Inside Dining Rooms
In the landmark 2017 ruling in Federation of Hotel and Restaurant Associations of India (FHRAI) v. Union of India, the Supreme Court affirmed that restaurants can charge prices higher than the printed Maximum Retail Price (MRP) for bottled mineral water and soft drinks consumed inside the dining room, because the diner is purchasing a bundled hospitality service (glassware, air conditioning, seating, and service staff) rather than a simple retail commodity.
Under GST, this distinction is critical:
- Served at the Table: The bottled drink is part of composite restaurant service and attracts 5% GST.
- Sold Sealed at the Counter: If a customer buys an unopened cold drink to go without dining, it is treated as a retail sale of goods, attracting the product's printed GST rate (typically 28% plus 12% compensation cess for aerated drinks), and cannot legally exceed the printed MRP.
5. The Composition Scheme: When the Bill Displays Zero GST
Small restaurants and roadside cafes with annual turnover below ₹1.5 Crores (or ₹75 Lakhs in northeastern states) have the statutory option to register under the GST Composition Scheme (Section 10 of the CGST Act).
The financial mechanics of composition dining differ fundamentally from regular registration:
- No Tax Collected from Diners: A composition dealer is legally prohibited from collecting GST from their customers. The customer bill must contain zero tax lines.
- Bill of Supply: The restaurant issues a "Bill of Supply" bearing the mandatory text:"Composition taxable person, not eligible to collect tax on supplies."
- Flat 5% Outflow: The restaurant pays a flat 5% tax on its gross quarterly turnover directly to the government via Form CMP-08, funded entirely out of operational cash margins.
- Strict Alcohol Disqualification: Under Section 10(2)(a), any establishment supplying non-taxable goods (including alcoholic beverages) is disqualified from the composition scheme. A restaurant serving beer must operate under the regular GST regime.
6. The 5% vs 18% "ITC Paradox" in Restaurant Unit Economics
When the government slashed restaurant GST from 18% to 5% in November 2017, diners celebrated the lower check totals. For restaurant operators, however, the reform introduced a structural financial distortion known as the Blocked ITC Squeeze.
Under Notification 46/2017, the 5% rate was granted on one strict condition: Input Tax Credit is completely denied. Standalone restaurants cannot claim a single rupee of credit on:
- Commercial Space Leases: Commercial landlords levy 18% GST on monthly rent.
- Food Delivery Commissions: Zomato and Swiggy charge 18% GST on all service commissions.
- Kitchen Capital Investments: Commercial ovens, refrigeration units, and POS terminals carry 18% GST.
- Marketing & Tech Subscriptions: Software SaaS platforms and digital agencies bill 18% GST.
| Monthly Expense Line Item | Monthly Cost (Excl. Tax) | GST Rate Billed | Monthly Unclaimable Dead Tax |
|---|---|---|---|
| Commercial Rent (Metro High Street) | ₹2,00,000 | 18% GST | ₹36,000 / month |
| Aggregator Platform Commissions (22%) | ₹2,20,000 | 18% GST | ₹39,600 / month |
| Kitchen Capex & Maintenance | ₹80,000 | 18% GST | ₹14,400 / month |
| Disposable Packaging Materials | ₹50,000 | 18% GST | ₹9,000 / month |
| Total Monthly Blocked Credit | ₹5,50,000 | 18% Blended | ₹99,000 / month (₹11.88L / yr) |
In the case study above, a restaurant generating ₹10 Lakhs in monthly revenue loses ₹99,000 every single month in blocked taxes. That amounts to nearly 10% of gross revenue surrendered to unrecoverable indirect taxes.
7. How KNOMI Streamlines Multi-Tax Dining and Recovers Margins
Because standalone restaurants cannot change the statutory 5% no-ITC regime, the only viable way to protect net profitability is to eliminate the operational expenses that carry unclaimable 18% GST.
The single largest driver of blocked tax leakage is aggregator delivery commission. When a platform charges ₹2,20,000 in monthly commission, you pay an additional ₹39,600 in dead tax that cannot be recovered.
By migrating your in-house floor to KNOMI self-ordering, you reclaim both margin and tax sanity:
1. Zero Aggregator Commission: Keep 100% of your tabletop revenue and eliminate tens of thousands of rupees in unclaimable 18% commission GST.
2. Automated Multi-Tax Invoicing: KNOMI POS and guest ordering engines dynamically separate 5% food GST, 18% non-food merchandise, and State Liquor VAT on customer receipts with zero manual calculation.
3. Flexible Monthly Subscription Terms: Avoid lock-in contracts and flat fees, operating on modern subscription billing that scales with your dining room covers.
Frequently Asked Questions: GST Rates on Restaurant Food
What is the standard GST rate on restaurant food in India?
The standard GST rate on restaurant food is 5% with zero Input Tax Credit (ITC) for the vast majority of establishments, including standalone dine-in restaurants, cafes, food trucks, takeaway counters, and delivery-only cloud kitchens. This 5% is split equally into 2.5% Central GST (CGST) and 2.5% State GST (SGST) on intra-state supplies under SAC Code 996331.
When does a restaurant charge 18% GST instead of 5%?
A restaurant charges 18% GST (with full Input Tax Credit) only if it is situated inside a hotel classified as a 'specified premises.' Under Notification 05/2025 Central Tax (Rate), effective 1 April 2025, an establishment qualifies as a specified premises if any hotel room had an actual transaction value exceeding ₹7,500 per night in the preceding financial year. Standalone restaurants outside such hotels cannot charge 18%.
Does air conditioning (AC) affect the restaurant GST rate?
No. The distinction between air-conditioned and non-air-conditioned restaurants was completely abolished by the GST Council in November 2017. Whether your dining room has split ACs, central air conditioning, open-air garden seating, or ceiling fans, the tax rate for a standalone restaurant is identical: 5% without Input Tax Credit.
How is alcohol taxed on a restaurant bill that also includes food?
Alcoholic beverages for human consumption are constitutionally excluded from the GST framework under Article 366(12A) and are taxed under State Excise and State Value Added Tax (VAT). On a bill containing both food and alcoholic drinks, two separate tax systems apply: the food subtotal attracts 5% GST, while the beer, wine, and spirits subtotal attracts State Liquor VAT (typically between 18% and 35% depending on the state).
Is GST charged on the restaurant service charge?
Yes. Under Section 15 of the CGST Act, the taxable value for GST includes any incidental expenses and charges linked to the supply. If a restaurant levies a discretionary service charge (typically 5% to 10%), that service charge forms part of the food service value and attracts the same 5% food GST rate on the final customer invoice.
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