GST ON RESTAURANT SERVICES 5% Vs 18% When Does What Rate Apply?
- Legal Sections
- 16 Jun, 2026
GST on Restaurant Services: 5% vs 18%. When Does What Rate Apply?
By a tax enthusiast who has spent too much time staring at GST circulars so you don't have to.
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Let me tell you a story. You go to a restaurant have a great meal. Then you see the bill. The GST charge is higher than what your friend paid at an eatery. You wonder why the government is charging rates for the same thing. Food.
You are not the one who is confused. Many people, including restaurant owners and tax professionals do not understand why there are GST rates. The good news is that it is actually quite simple. The bad news is that there are some rules that can be tricky.
Let us go through it step by step.
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First, a Quick Recap of How GST Works in Restaurants
When you eat at a restaurant you are getting a service. GST applies to services just like it applies to goods. The GST rate depends on the type of restaurant. If it can claim Input Tax Credit.
Input Tax Credit is like a discount. If a restaurant buys things like vegetables, oil and equipment it can use the GST it paid on those things to reduce the GST it owes. This is why GST rates for restaurants are different.
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The 5% Rate. Who Gets It and Who Is Stuck With It
Most restaurants in India pay 5% GST. This includes restaurants that're not part of a hotel where the room rate is more than five thousand rupees per night. These restaurants cannot claim Input Tax Credit.
The government made a deal. It lowered the GST rate so that customers pay less. It did not let restaurants claim Input Tax Credit. The idea was to keep food affordable.
So if you eat at a restaurant or a pizza place you probably pay 5% GST. The restaurant does not get Input Tax Credit. You do not pay a higher bill.
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The 18% Rate. Where It Kicks In
Now things get a little more complicated. The 18% GST rate applies in two situations.
**Restaurants in hotels where the room rate's more than five thousand rupees per night** pay 18% GST. These restaurants can claim Input Tax Credit. The idea is that if you eat at a hotel you are getting a premium service.
**Outdoor catering services** also pay 18% GST with Input Tax Credit. If a hotel or catering company provides food and drinks at an event it pays 18% GST.
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## What About the Composition Scheme?
There is a category. Small restaurants with a turnover of up to one and a half crore rupees can opt for the composition scheme. They pay 5% GST on their turnover. They do not collect GST from customers.
Under this scheme the restaurant pays GST out of its pocket. The customer does not pay GST separately. The restaurant cannot give a GST invoice.
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## A Simple Way to Think About All of This
Think of it like this. The government has divided restaurants into three groups.
The first group is restaurants under the composition scheme. They pay a rate do not charge GST to customers and keep things simple.
The second group is restaurants that charge 5% GST without Input Tax Credit. This includes restaurants.
The third group is premium restaurants that charge 18% GST with Input Tax Credit. This includes restaurants in hotels and outdoor caterers.
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##. Takeaway. Does the Rate Change?
This is a question that confuses people. If you order food online or take it away from a restaurant does the GST rate change?
For the part no. The GST rate is the same as the restaurants rate. So if a restaurant normally charges 5% GST it also charges 5% on delivery orders.
However there is a twist. From January 2022 food delivery platforms like Swiggy and Zomato are responsible for collecting and paying GST on restaurant food. The rate is still 5%. The platform handles the GST.
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What Customers Often Get Confused About
Many customers complain about different GST rates at different restaurants. They do not understand why they pay 5% at one restaurant and 18% at another.
The answer is simple. It depends on the type of restaurant and where it is located. A restaurant in a mall may charge 5% GST while a restaurant in a hotel may charge 18% GST.
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The ITC Debate. Does It Help Customers?
Some people argue that the Input Tax Credit benefit for 18% restaurants does not actually help customers. They say that restaurants do not pass on the savings to customers.
This is a point. The government removed the Input Tax Credit facility for restaurants in 2017 to make dining more affordable. However it is debatable whether this actually worked.
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Common Scenarios at a Glance
To summarize here are some scenarios:
* If you eat at a restaurant you pay 5% GST.
* If you eat at a restaurant in a hotel you pay 18% GST.
* If you order food online you pay 5% GST and the platform handles the GST.
* If you eat at a restaurant under the composition scheme you do not pay separate GST.
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A Note for Restaurant Owners and Business Operators
If you own a restaurant here is a test. Are you located in a hotel where the room rate's more than five thousand rupees, per night? If yes you charge 18% GST. Can claim Input Tax Credit. If no you charge 5% GST. Cannot claim Input Tax Credit.
If you have a business with a turnover of less than one and a half crore rupees you might want to look into the composition scheme. This scheme has rules to follow and a simpler tax system but you will not be able to give tax invoices to your business customers who are registered for GST.
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Wrapping Up
GST on restaurants seems like a topic at first but it is actually pretty simple once you understand what the government is trying to do. The main idea is that eating at restaurants should not be too expensive while fancy restaurants are treated differently.
Most restaurants have a GST rate of 5%. They cannot claim input tax credit, which helps keep food prices low for everyday people. Hotel restaurants and catering services have a GST rate of 18%. They can claim input tax credit because they offer a more premium experience.
Time you get a restaurant bill and look at the GST amount you will know why it is what it is.. That is a good thing for most of us.
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This blog is for information only. If you need tax advice, for your business you should talk to a qualified Chartered Accountant or tax professional.