Goods and Services Tax Regulations and Rates for Indian Restaurants and Food Services
This article explores the impact of GST on India's restaurant and food service industry, detailing the updated tax rates and rules effective from September 22, 2025. It clarifies how GST replaces previous taxes like VAT and Service Tax, simplifying the tax structure for consumers and business owners. The content breaks down various GST rates for different types of restaurants and food items, distinguishing between essential goods and luxury products, and illustrates the financial benefits for the sector under the new regime.
This article examines the significant changes introduced by the 56th GST Council Meeting, effective September 22, 2025, concerning the restaurant and food service sectors. It offers a comprehensive overview of the revised tax rates, their influence on billing, and their implications for both diners and business operators. The key takeaways from these changes are:
- GST replaced Service Tax and VAT with a simplified single tax rate for restaurants.
- Standalone restaurants and those within hotels with room tariffs below ₹7,500 are subject to a 5% GST without input tax credit (ITC).
- Restaurants located in hotels where room tariffs are ₹7,500 or more are classified as "specified premises" and incur an 18% GST with ITC.
- GST rates for essential food items have decreased, while luxury goods like pan masala and sugary drinks face higher rates.
- Overall, these GST amendments aim to lessen the tax burden on restaurant bills, benefiting both patrons and business owners.
Understanding Pre-GST Restaurant Bills
Consumers often overlook the detailed components of their restaurant bills. Before GST implementation, a typical fine-dining bill included Service Tax, Service Charge, and Value Added Tax (VAT) in addition to the food cost. Understanding these elements is crucial:
- VAT: This tax was levied specifically on the food portion of the bill.
- Service tax: This tax applied to the services provided by the restaurant. The government had previously separated the service and food components for taxation purposes.
- Service charge: This is an additional fee imposed by restaurants, not a government tax. It represents income for the establishment and should not be confused with service tax, which was collected and remitted to the government.
The current GST rates differ significantly from the tax structure observed prior to this policy shift. These updated rates are detailed below.
GST Regulations for Restaurants
Restaurants are subject to either a 5% GST rate without the ability to claim input tax credit (ITC) or an 18% GST rate with ITC claims, under the Goods and Services Tax regime. The applicable rate is determined by the restaurant's location and specific operational context. For example, dining establishments situated within hotels that charge a room tariff above a certain threshold will face the higher GST rate. The following tables outline the specific GST rates for various food, catering, and restaurant services.
GST Rates on Restaurant Services
| S No | Type of Restaurants | GST Rate |
|---|---|---|
| 1 | Food supplied or catering services by Indian Railways/IRCTC | 5% without ITC |
| 2 | Standalone restaurants, including takeaway | 5% without ITC |
| 3 | Standalone outdoor catering services | 5% without ITC |
| 4 | Restaurants within hotels (Where room tariff is less than Rs 7,500) | 5% without ITC |
| 5 | Normal/composite outdoor catering within hotels (Where room tariff is less than Rs 7,500) | 5% without ITC |
| 6 | Restaurants within hotels* (Where room tariff is more than or equal to Rs 7,500) | 18% with ITC |
| 7 | Normal/composite outdoor catering within hotels* (Where room tariff is more than or equal to Rs 7,500) | 18% with ITC |
| 8 | Food delivery services | 18% with ITC |
*This covers individuals supplying catering or other services in hotels (having room tariff of Rs 7,500 or more) and not any hotel accommodation services.
GST Rates on Food Items
The majority of food items are taxed at a 5% GST rate. Essential goods, such as fresh fruits, vegetables, milk, and meat, remain exempt from GST. However, the Council implemented significant adjustments for processed, packaged, and luxury products. Key changes are highlighted below:
| Food Category | Old GST Rate | New GST Rate |
|---|---|---|
| UHT milk, pre-packaged paneer, pizza bread, khakhra, chapathi, roti | 5% | Nil |
| Paratha, parotta, other Indian breads | 18% | Nil |
| Condensed milk, butter, dairy fats, cheese | 12% | 5% |
| Dried nuts and fruits (almonds, pistachios, etc.) | 12% | 5% |
| Various 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, jellies | 12% | 5% |
| Fruit & vegetable juices, pre-packaged tender coconut water | 12% | 5% |
| Malt and vegetable extracts, coffee and tea extracts | 18% | 5% |
| Cocoa products (chocolate, butter, powder) | 18% | 5% |
| Pan masala | 28% | 40% |
| Sugary and flavored beverages (carbonated, caffeinated) | 18% / 28% | 40% |
| Other non-alcoholic beverages | 18% | 40% |
Evidently, the government has reduced the tax burden on essential commodities while imposing stricter taxes on luxury items and discretionary purchases.
Impact on Restaurant Business Owners
Under the GST framework, Service Tax and VAT are consolidated into a single tax rate, although service charges may still appear on restaurant bills. A high-level comparison of food bills before and after GST implementation is provided below. This comparison assumes VAT was applied at 100% of the value without any reductions.
| Particulars | Billing under VAT regime | Billing under GST regime |
|---|---|---|
| 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 ST) | 75 | |
| —GST ITC | – | |
| Final Output tax liability | ||
| –VAT | 650 | |
| –Service Tax | 300 | |
| –GST | 250 |
In the preceding illustration, the total tax liability under the previous regime amounted to Rs. 950. Conversely, with GST, the net expenditure is reduced to Rs. 250, attributed to the lower tax rates. This suggests that the GST regime offers advantages for both restaurant patrons and proprietors, encouraging more dining experiences.