GST on Restaurant Bills: 5% or 18%, and Why

Two people can eat the same dish on the same evening in the same city and see different tax on the bill. One pays the lower 5% slab, the other the 18% slab. Neither bill is wrong. The difference is not the food and it is not the price — it is whether the restaurant is entitled to claim input tax credit on what it buys. The lower rate comes with the credit switched off; the higher rate comes with it switched on. Everything else on a restaurant bill, including the bit most people assume is a tax, follows from that one trade.

Why the same meal can be taxed two different ways

Serving food in a restaurant is a supply of service, not a supply of goods. That classification was settled early, and it matters because the rate notification for services carries conditions in a way that the goods notification generally does not. The entry that covers restaurant service grants the lower rate subject to a condition written into the entry itself: that credit of input tax charged on goods and services used in supplying the service has not been taken.

So the low rate is not a concession the restaurant receives on top of its normal position. It is a bargain. The restaurant charges the customer less tax, and in exchange it absorbs the GST on its own rent, its electricity, its packaging, its commissions and its capital equipment as a cost rather than recovering it. For a small operator whose largest input is unregistered vegetables and labour, that bargain is usually favourable. For a large operation paying commercial rent and platform commission at 18%, it is often not — but the choice is not the restaurant's to make. It is determined by where the restaurant sits.

Customers who see 5% on one bill and 18% on another routinely assume the second restaurant is overcharging. It is not. It sits in a different rate entry and is recovering credit the first restaurant cannot. Our guide to the current GST rate slabs sets out the wider structure, and the input tax credit rules explain what taking credit involves.

Specified premises: the hotel restaurant rule

The dividing line between the two rates is a defined term: specified premises. A restaurant located in specified premises falls into the higher slab with credit; everything else — a standalone restaurant, a food court counter, a restaurant in a hotel below the line — falls into the lower slab without credit.

The definition works from the accommodation side of the business, not the food side. The original formulation used the hotel's declared tariff: if any unit of accommodation was declared above a prescribed amount, the restaurant inside became specified premises. That was awkward, because a declared tariff is a published rate a hotel may never actually charge, and a single suite listed above the threshold could pull the whole coffee shop into the higher rate.

The definition was subsequently amended to work from the value of supply of a unit of accommodation actually made, and to add an election. The mechanism is a declaration filed for a financial year, with qualification tested against the value of accommodation supplied from those premises in the preceding financial year. A hotel that crossed the threshold in the preceding year falls in; one that did not can opt in voluntarily, and can opt out by filing the corresponding declaration for a year in which it does not qualify. A new registrant declares at the point of registration.

The status is therefore decided in advance and holds for the year rather than fluctuating with each night's room rate, which is the point: a restaurant needs to know at the start of the year whether it is charging with credit or without, because that determines its purchase accounting for twelve months. Do not assume a hotel restaurant is in the higher slab because the hotel looks expensive, and do not assume the threshold figure you remember is still current.

Outdoor catering, events and canteens

Restaurant service is defined narrowly: supply of food or drink in a place where it is served, whether consumed there or taken away. Move the food off those premises and you are usually no longer in the restaurant entry at all.

Outdoor catering — supplying food at a venue the caterer does not run, such as a wedding lawn, an office or a hired hall — sits in its own entry. Its treatment mirrors the restaurant split: catering supplied at premises that are not specified premises attracts the lower rate without credit, while catering supplied at or by specified premises attracts the higher rate with credit. A hotel that caters an event at its own banquet hall is in a different position from an independent caterer doing the same event elsewhere.

Event and venue packages complicate this further. When a hotel sells a wedding package that bundles the hall, decoration, accommodation and food for a single price, the food is no longer being supplied on its own. The bundle is assessed as a composite supply and taxed at the rate applicable to the principal supply — which in most such packages is the venue and accommodation element rather than the catering. That is why a banquet invoice and a restaurant invoice from the same hotel can carry different rates.

Canteens in factories and offices are a category of their own, with a long line of advance rulings on whether an employer recovering a subsidised amount from employees is making a supply at all. That question deserves specific advice rather than a general rate lookup.

Bakeries, sweet shops and the composite supply question

A bakery that bakes bread and sells it over a counter is supplying goods. A bakery with tables where you sit with a coffee is supplying restaurant service. Many bakeries and sweet shops do both from the same premises, and the boundary between them is one of the more frequently litigated points in the sector.

The test is what is actually being supplied, not where the customer stands. A packaged sweet, biscuit or namkeen sold from a counter with no service element is a supply of goods, classified under its own HSN and taxed at the rate for that good. Where the same shop operates a seating area and serves prepared food, that part of the business is restaurant service. Advance rulings have generally accepted that a sweet shop with a separate restaurant section can treat the two as distinct supplies if it maintains separate records — but also that a shop cannot dress up a counter sale as restaurant service, or the reverse, to reach a preferred rate.

The point that surprises most customers: eating in and taking away do not change the rate. Restaurant service expressly covers food supplied at the premises whether it is consumed there or carried out. A parcelled biryani from a restaurant counter is restaurant service at the restaurant's rate. It is the nature of the establishment and the supply, not the customer's choice of seat, that decides the entry.

Where a shop bundles items — a gift hamper of sweets and dry fruits, say — the composite versus mixed supply distinction takes over. A composite supply is naturally bundled in the ordinary course of business and takes the rate of its principal supply. A mixed supply is a combination that could perfectly well be sold separately, and takes the highest rate of any component in it. Hampers are usually mixed supplies, which is why a box containing one high-rated item is taxed at that item's rate throughout.

Swiggy, Zomato and section 9(5)

Order the same food through a delivery app and the tax on the bill is shown against the platform, not the restaurant. That is not a presentation quirk. It is section 9(5) of the CGST Act, which empowers the government to notify categories of service on which the electronic commerce operator — rather than the person who actually supplies the service — is liable to pay the tax, as if the operator were the supplier itself.

Restaurant service supplied through an electronic commerce operator is one of the notified categories. The consequences run in several directions:

• The platform pays the tax. Swiggy or Zomato discharges the GST on the restaurant service under its own registration, at the rate applicable to that restaurant, and remits it to the government.
• The restaurant does not pay tax on that supply. It still reports the supply in its GSTR-1, in the dedicated table for supplies on which the operator is liable, and the corresponding entry flows to its GSTR-3B as a supply on which it is not paying tax. Getting this into the wrong table is a common filing error — it either double-counts the tax or leaves turnover unreported.
• This is not the same as TCS. Where a platform merely facilitates a supply of goods, it collects tax at source and the seller pays the GST. Under section 9(5) there is no TCS on that supply, because the operator is paying the tax itself. Our guide for e-commerce sellers sets out the TCS mechanism and where the two regimes part company.
• The delivery fee is a separate question from the food. The platform's own charges to the customer are its own supply, taxed on their own footing.

A restaurant supplying only through platforms still registers and still files returns; being relieved of the tax on those supplies does not remove it from the system. And a restaurant on the lower 5% entry gets no credit for the platform commission it pays, which is a real cost in a thin-margin business.

Alcohol and the service charge: two things that are not GST

Alcohol sits outside GST altogether

Alcoholic liquor for human consumption is excluded from GST by the Constitution. It remains with the states, under state excise and state VAT, and no GST is levied on it at all. A bill with a bar tab therefore carries two separate computations: GST at the restaurant's applicable rate on the food and non-alcoholic lines, and state VAT on the alcohol lines. Each is computed on its own base and neither is charged on top of the other, so a single tax percentage applied to a total that includes liquor is worth querying.

Service charge is a restaurant charge, not a tax

Service charge is the line customers most often mistake for a levy. It is not one. No part of it goes to the government, it is not authorised by any tax statute, and the restaurant keeps it — whether it distributes it to staff is a matter of the restaurant's own policy. The Central Consumer Protection Authority has issued guidelines holding that service charge cannot be collected automatically or made a condition of entry or service, and that a customer may ask for it to be removed.

The GST position on it follows from valuation rather than from anything specific to restaurants. GST is charged on the value of the supply, and where a service charge is levied and forms part of the consideration the customer pays, it forms part of that value. So GST is computed on the amount including the service charge. Removing the service charge therefore reduces the tax as well, because it reduces the base on which the tax is computed.

How to read a restaurant bill line by line

A correctly issued restaurant bill is a tax invoice and has to carry the elements any tax invoice carries. Working down it in order:

The GSTIN is the element worth checking. It is fifteen characters: two digits of state code, the ten-character PAN of the business, an entity number, the letter Z, and a checksum character. A number of the wrong length, or whose state code does not match the restaurant's state, is wrong on its face. Beyond the format, the only way to know a GSTIN is real and active is to look it up against the taxpayer register — free on our GST number search, which returns the legal name, registration status and jurisdiction. If the name that comes back is not the restaurant you ate at, something is wrong. Our guide on how to check a fake GST number covers the checks in detail, and the invoice format rules set out what a compliant tax invoice must contain.

The composition option for small restaurants

A small restaurant below the turnover limit can register under the composition scheme instead. The trade there is sharper still: it pays a flat percentage of turnover as tax, takes no input tax credit at all, cannot charge tax to its customers, and files a simple quarterly statement with an annual return rather than monthly returns. Restaurant service is one of the few service activities the scheme admits, which is why the option matters in this sector when it matters almost nowhere else in services.

The visible consequence for a customer is that a composition dealer's bill is a bill of supply, not a tax invoice, and it shows no GST line at all. It must instead carry a declaration that the supplier is a composition taxable person and is not eligible to collect tax on supplies. A composition restaurant that shows a GST line on the bill is charging something it is not entitled to charge, which is a different problem from an unregistered business doing the same thing — see charging GST without registration for what that actually amounts to. The turnover limits and the flat rate are set by notification and have been revised; our guide to the composition scheme limits covers the current structure and the conditions attached.

Frequently asked questions