Complete Guide to GST for Indian Restaurants and Cafes

GST changed the game for every food business in India. Before July 2017, restaurant owners dealt with a confusing mix of VAT, service tax, and local levies that varied from state to state. A cafe owner in Mumbai paid different taxes than one in Chennai. A bakery in Delhi had different rules than one in Kolkata. GST replaced all of that with a single, unified tax system. But even though the idea was simplification, the reality is that many restaurant owners still find GST confusing. Which slab applies to your restaurant? When do you need to register? What goes on the invoice? These are questions that thousands of food business owners across India ask every single day.

The cost of getting GST wrong is real. Late filing can lead to penalties of ₹50 per day (₹25 CGST + ₹25 SGST) for each return, up to a maximum of ₹5,000. Incorrect invoices can trigger notices from the tax department. And if you are not maintaining proper records, an audit can become a nightmare. The purpose of this guide is to break down everything you need to know about GST for restaurants in plain, simple language. No legal jargon, no complicated charts—just practical information you can use starting today. Whether you own a small chai stall in Jaipur, a cloud kitchen in Bangalore, or a family restaurant in Pune, this guide covers the rules that apply to you.

GST Rates for Different Types of Restaurants

The GST rate your restaurant pays depends on the type of establishment you run. This is where most of the confusion starts, so let us clear it up. Non-AC restaurants and small eateries that do not serve alcohol pay 5% GST. This is the most common category, and it covers the majority of restaurants, cafes, dhabas, sweet shops, and bakeries across India. The 5% rate is split as 2.5% CGST (going to the central government) and 2.5% SGST (going to your state government). At this rate, you do not get to claim input tax credit (ITC), which means you cannot offset the GST you paid on purchases like ingredients or packaging against the GST you collect from customers.

Restaurants inside hotels where the room tariff is above ₹7,500 per night pay 18% GST. This higher rate comes with the benefit of input tax credit. So if the hotel restaurant buys raw materials, kitchen equipment, or furniture, it can claim the GST paid on those purchases as credit. For smaller hotels with room tariffs below ₹7,500, the restaurant still falls under the 5% slab without ITC. Outdoor catering services are taxed at 5% without ITC if provided independently, or at 18% with ITC if part of a hotel package. Takeaway food and delivery is treated the same as dining-in, so the 5% rate applies to most cloud kitchens and delivery-only brands as well. The important thing to remember is that these rates apply to the food preparation and serving service—not to packaged food items, which have their own separate HSN codes and rates.

GST Registration and Filing Requirements

Not every food business needs GST registration. If your annual turnover is below ₹20 lakh (or ₹10 lakh if you are in a special category state like those in the North-East, Himachal Pradesh, or Uttarakhand), you are not legally required to register. But many small restaurant owners still choose to register voluntarily. Why? Because having a GSTIN on your bills makes your business look more professional and trustworthy. It also becomes mandatory if you want to list on food delivery platforms like Swiggy or Zomato, as they require GSTIN for onboarding.

Once registered, you need to file returns regularly. The main returns for most restaurants are GSTR-1 (details of your outward supplies, filed monthly or quarterly) and GSTR-3B (a summary return with tax payment, filed monthly). If your annual turnover is below ₹5 crore, you can opt for the QRMP (Quarterly Return Monthly Payment) scheme, which lets you file GSTR-1 and GSTR-3B quarterly instead of monthly. You still need to pay tax every month under this scheme, but it reduces the paperwork. Additionally, there is GSTR-9, the annual return, which is a consolidated summary of your entire year's transactions. For businesses with turnover below ₹2 crore, GSTR-9 filing is optional but recommended.

The Composition Scheme is another option worth knowing about. If your turnover is below ₹1.5 crore, you can register under the Composition Scheme and pay a flat 5% GST on your turnover (1% CGST + 1% SGST for restaurant services, effectively totaling 2% under composition for some categories—but the common restaurant rate under composition is 5% of turnover). Under this scheme, you file just one quarterly return (CMP-08) and one annual return (GSTR-4). The downside is that you cannot collect tax from customers separately on invoices, you cannot claim input tax credit, and you cannot do inter-state supply. For a small single-outlet restaurant in a city like Varanasi or Bhopal that only serves walk-in customers, the Composition Scheme can save a lot of compliance headaches.

What Must Appear on a GST-Compliant Restaurant Invoice

Your restaurant bill is not just a receipt—it is a legal tax document. Getting the format wrong can cause problems during audits. Here is exactly what a GST-compliant restaurant invoice must include. First, your restaurant's name, address, and GSTIN must be printed clearly at the top. Second, a unique invoice number in a sequential series (like INV-001, INV-002). Third, the date of the invoice. Fourth, the customer's name and address if the bill amount exceeds ₹50,000 (for B2C invoices, customer details are not mandatory below this amount). Fifth, a description of the items served with quantity and price. Sixth, the HSN code or SAC code for the items. For restaurant services, the SAC code is 9963. Seventh, the taxable value and the tax amount split into CGST and SGST (or IGST if applicable).

Many restaurant owners in cities like Ahmedabad, Kochi, and Chandigarh get confused about the "inclusive" vs "exclusive" tax question. When your menu says "Butter Chicken - ₹350," is that price before tax or including tax? Both approaches are valid, but you must be consistent and your billing system must handle the math correctly. If prices are inclusive of GST, the software needs to back-calculate the taxable value. For example, on a ₹350 inclusive price with 5% GST, the taxable value is ₹333.33 and the GST is ₹16.67 (split as ₹8.33 CGST + ₹8.34 SGST). If you are doing this manually, errors are almost guaranteed. This is exactly why proper billing software is essential—it does these calculations automatically on every single bill, hundreds of times a day, without mistakes.

One more thing: the government has made e-invoicing mandatory for businesses with turnover above ₹5 crore. While most small restaurants are below this threshold, the limit has been decreasing over the years. It started at ₹500 crore and has come down to ₹5 crore. It is likely that in the coming years, smaller businesses will be included too. Getting your billing system set up correctly now means you will be ready when the rules tighten. Also, always issue a proper invoice even for small amounts. Some owners skip the bill for orders under ₹100 or ₹200, thinking it does not matter. But if a tax officer visits and finds transactions without invoices, it can lead to penalties and questions about unreported income.

How PeeledOnion Solves This

PeeledOnion takes the confusion out of GST for restaurant owners. When you set up your account, you enter your GSTIN once, choose your tax slab, and decide whether your menu prices are inclusive or exclusive of GST. From that point forward, every bill is automatically generated with the correct CGST and SGST split, your GSTIN, a sequential invoice number, and all the fields required by law. You do not need to remember any rules or do any calculations. The software handles it every time, whether you are billing a ₹50 tea order or a ₹5,000 party booking.

At the end of each month, PeeledOnion generates a GST summary report that breaks down your total taxable sales, CGST collected, SGST collected, and category-wise tax amounts. You can download this report and share it directly with your CA or accountant. It gives them exactly what they need to file your GSTR-1 and GSTR-3B without calling you ten times asking for missing numbers. For restaurant owners in cities like Surat, Visakhapatnam, and Ranchi who may not have a full-time accountant, this report alone can save hours every month. And because PeeledOnion is free for core billing, you get all of this without adding another monthly expense to your business.

Frequently Asked Questions