GST on Restaurant Food in India: 5% vs 18% Rates & Liquor VAT (2026)

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 the vast majority 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.

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, which could differ from the price rooms actually sold for. The 2025 change ties the test to the actual transaction value instead.

The Standalone Restaurant Lockout

Some independent restaurant owners with high capital expenditure (say, a microbrewery with crores invested in imported fermentation tanks, or a fine-dining bistro paying several lakhs a month in commercial rent) would prefer to pay 18% GST so they could claim Input Tax Credit on their equipment and leases.

The rate notifications do not offer that choice: a standalone restaurant cannot opt into the 18% regime. The 5% rate without ITC is mandatory for standalone food outlets. The 18% rate is restricted to restaurants in hotels that qualify as specified premises.

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).

The rates below are indicative and change with state budgets and excise policy. Confirm the current rate for your outlet with your state excise or commercial tax department, or your chartered accountant.

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, say, ₹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 typically carry 18% GST.
• Marketing & Tech Subscriptions: Software SaaS platforms and digital agencies bill 18% GST.

Take the illustrative figures above for a restaurant with ₹10 Lakhs in monthly revenue: it pays ₹99,000 every month in GST it cannot claim back. That is nearly 10% of gross revenue surrendered to unrecoverable indirect taxes.

7. Where KNOMI Fits: Zero Commission on Dine-In Orders

Because standalone restaurants cannot change the statutory 5% no-ITC regime, one practical lever for protecting net profitability is to reduce the operating expenses that carry GST you cannot claim back.

In the illustrative table above, the largest single line is aggregator commission: ₹2,20,000 a month in commission carries another ₹39,600 in GST that cannot be recovered.