GST Rate on Food Items
Most food items fall under the 5% GST slab. Basic essentials such as fresh fruits, vegetables, milk, and meat continue to be exempt from GST. However, the GST Council has introduced major changes for processed, packaged, and luxury food items. The key updates are outlined below:
Food Category
|
Old GST Rate
|
New GST Rate
|
UHT milk, pre-packaged paneer, pizza bread, khakhra, chapathi, roti
|
5%
|
Nil
|
Paratha, parotta, and other Indian breads
|
18%
|
Nil
|
Condensed milk, butter, dairy fats, cheese
|
12%
|
5%
|
Dried nuts and fruits (almonds, pistachios, etc.)
|
12%
|
5%
|
Other dried fruits (dates, figs, mixed nuts)
|
12%
|
5%
|
Animal fats, marine animal fats, lard
|
12%
|
5%
|
Refined sugar, sugar confectionery, pasta, extruded snacks
|
12%
|
5%
|
Preserved vegetables, jams, and jellies
|
12%
|
5%
|
Fruit and vegetable juices, pre-packaged tender coconut water
|
12%
|
5%
|
Malt and vegetable extracts, coffee and tea extracts
|
18%
|
5%
|
Cocoa products (chocolate, cocoa butter, cocoa powder)
|
18%
|
5%
|
Pan masala
|
28%
|
40%
|
Sugary and flavoured beverages (carbonated or caffeinated)
|
18% / 28%
|
40%
|
Other non-alcoholic beverages
|
18%
|
40%
|
Original GST rules for restaurants
When GST was introduced in July 2017, its goal was to simplify the complex system of VAT and Service Tax. Initially, the rates were fragmented: non-AC restaurants were taxed at 12%, while AC restaurants and those serving alcohol faced an 18% rate. While this improved transparency, it was criticised for high costs and the “cascading” effect of taxes.
By September 2025, the system had moved to the Next-Generation GST regime. The previous 12% “messy middle” slab has largely been removed. Most restaurant services are now taxed at a unified 5% “Merit Rate” to keep dining affordable, while the 18% rate applies only to luxury “Specified Premises” such as high-end hotels, which can still claim Input Tax Credit (ITC).
GST composition scheme rules for restaurants
The GST Composition Scheme continues to be an important support for small restaurants. According to the 2025 guidelines, the rules and eligibility are as follows:
Turnover Limit: Small restaurants with an annual turnover up to Rs. 1.5 crore (Rs. 75 lakh for special category states) can opt for this scheme.
Flat Tax Rate: Eligible restaurants pay a fixed 5% GST on their total turnover. This tax is borne by the restaurant and cannot be separately charged to customers on invoices.
Simplified Compliance: Instead of monthly filings, composition scheme restaurants submit a quarterly statement (CMP-08) and an annual return (GSTR-4), significantly reducing paperwork.
Restrictions: Restaurants under this scheme cannot claim Input Tax Credit (ITC) and are not allowed to serve alcoholic beverages. Under the 2025 update, most small restaurants selling via e-commerce platforms are covered under Section 9(5), where the platform pays GST on their behalf.
Input Tax Credit (ITC) for restaurants
The Input Tax Credit (ITC) framework was a key focus of the September 2025 GST reforms, aiming to clarify who can claim ITC and who cannot:
Standalone Restaurants: Most standalone eateries continue to pay GST at 5% without claiming ITC. This “no-ITC” approach helps keep final bills lower for consumers.
Specified Premises (Luxury Dining): Restaurants located in hotels with room tariffs above Rs. 7,500 per night are taxed at 18%. These establishments can claim full ITC on inputs such as raw materials, rent, and kitchen equipment, helping offset their higher operational costs.
Mandatory ISD (2025): For restaurant chains with multiple outlets, the Input Service Distributor (ISD) mechanism became mandatory in 2025. This ensures that tax credits for shared services (like marketing or head office expenses) are correctly distributed across all branches, preventing revenue loss.
Exemptions for GST on restaurant
The 56th GST Council meeting introduced important GST exemptions aimed at reducing the cost of living. While restaurant services are generally taxable, certain inputs and settings now receive greater relief:
Essential Food Exemption: A key 2025 update moved all Indian breads (roti, paratha, parotta, khakhra), UHT milk, and pre-packaged paneer to the NIL (0%) GST rate. This helps lower the base cost of ingredients for restaurant owners.
Institutional Exemptions: Canteens in educational institutions (schools and colleges) and messes in government hospitals remain exempt from GST.
Charitable Services: Free community meals (Langar) and food served at religious institutions continue to be fully exempt.
Small Business Threshold: The GST registration threshold remains Rs. 20 lakh (Rs. 10 lakh for certain states). Micro-restaurants earning below this limit are not required to register or pay GST.
How to calculate GST on restaurant bill using a GST calculator
Calculating GST on restaurant bills is quick and easy with an online GST Calculator. Just enter the bill amount, choose the applicable GST rate (5% or 18%), and the calculator will instantly display the GST charged and the total payable amount. Using a GST Calculator helps both restaurant owners and customers ensure accurate billing and maintain proper tax compliance.
Impact on Restaurant Business Owners
In the GST system, service tax and VAT will be combined into a single rate, but you may still see a service charge on your food bill. Below is a simple comparison of how your food bill will look before and after GST.
We have assumed that VAT is charged at 100% of the value with no reductions.
Particulars
|
Billing under VAT system
|
Billing under GST system
|
Total bill
|
5000
|
5000
|
Output tax
|
|
|
– VAT @14.5%
|
725
|
|
– Service tax @6%
|
300
|
|
– GST @5%
|
|
250
|
Total output tax liability
|
1025
|
250
|
Input credit
|
|
|
– VAT ITC (no ITC on service tax)
|
75
|
|
– GST ITC
|
|
–
|
Final output tax liability
|
|
|
– VAT
|
650
|
|
– Service tax
|
300
|
|
– GST
|
|
250
|
In this example, the total amount payable to the tax authorities under the current system comes to Rs. 950. But under GST, the amount you pay will be just Rs. 250, thanks to the reduced rates.
Conclusion
GST on restaurants has brought significant changes to the taxation system, affecting pricing, compliance, and overall operations. Understanding the GST rates, rules, and schemes, such as the composition scheme, is crucial for effective tax management. Utilising input tax credit provisions and leveraging exemptions where applicable can further optimise financial planning. For restaurant businesses, staying informed about GST rules and exploring options like business loans can support growth and sustainability in the competitive food service industry.
Helpful resources and tips for business loan borrowers
