GST for Restaurants and Cloud Kitchens: Rates, HSN Codes, ITC & Compliance
What Is GST for Restaurants?
GST for restaurants covers the tax rules that apply the moment you serve a plate of food, pack a takeaway order, or send out a delivery through an app. Whether you run a dine-in restaurant, a quick-service outlet, or a cloud kitchen with no seating at all, GST touches your pricing, your invoices, and the credit you can (or can’t) claim on your expenses. The rules aren’t the same across the board. A standalone restaurant is taxed differently from one sitting inside a five-star hotel, and a cloud kitchen has its own quirks when it comes to registration and billing. This guide walks through all of it in plain terms.
When Do Restaurants and Cloud Kitchens Need GST Registration?
GST Turnover Threshold for Restaurants
Restaurant services fall under the “supply of services” category for GST purposes, so the general registration threshold of Rs 20 lakh in annual turnover applies (Rs 10 lakh in special category states). Once your turnover crosses this limit in a financial year, registration becomes compulsory, regardless of whether you run a single outlet or a small home kitchen.
When GST Registration Is Mandatory Regardless of Turnover
Turnover isn’t the only trigger. You must register irrespective of your sales figure if you supply food through an e-commerce operator like Zomato or Swiggy that collects tax on your behalf, if you sell across state lines, or if you’re required to pay tax under reverse charge for certain inward supplies.
Do Cloud Kitchens Need GST Registration?
Yes, and the same turnover rule applies to them. A common mistake is assuming that a kitchen with no dine-in counter is somehow exempt. It isn’t. If a cloud kitchen crosses Rs 20 lakh in turnover, or sells through a food delivery platform, registration is mandatory, just like for a regular restaurant.
Voluntary GST Registration for Small Restaurants
Even below the threshold, many small eateries choose to register voluntarily. It opens the door to listing on food delivery apps (most platforms insist on a valid GSTIN), lets you bill corporate and catering clients properly, and adds a layer of credibility when you’re trying to grow beyond your first few regulars.
For the complete registration process, documents, fees, and timeline, check our detailed guide on GST registration.
GST Rate for Restaurants: Food vs Restaurant Service
GST on Restaurant Food and Beverage Service
The GST on restaurant services in India follows a clear split: 5% without ITC for most restaurants and 18% with ITC for hotel restaurants where declared room tariff exceeds ₹7,500 per night. This applies whether the food is eaten at the table or packed to go. Standalone restaurants, whether air-conditioned or not, whether they hold a liquor licence or not, all fall under the 5% no-ITC bracket.
GST on Takeaway and Parcel Orders
Takeaway and parcel orders are taxed exactly the same way as dine-in food from the same outlet. If your restaurant charges 5% for table service, your parcel counter charges 5% too. There’s no separate, lower rate just because the customer isn’t sitting down.
GST on Food Delivery Through Zomato and Swiggy
Food delivery through aggregator platforms works a little differently. Under the current rules, the e-commerce operator (the platform itself) is responsible for collecting and depositing GST on restaurant services booked through its app, rather than the restaurant charging it directly on that particular sale. Restaurants still need to track these transactions carefully for their own return filing and reconciliation, even though the tax collection responsibility shifts to the platform.
GST on Packaged Food and Ready-to-Eat Items
Packaged food is a different story altogether. If you sell branded, packaged snacks, sauces, or ready-to-eat items off a shelf rather than as part of a cooked meal, those items are taxed as goods, not as a restaurant service. The rate depends entirely on the specific product and can range widely, so each packaged item needs to be checked against its own HSN entry rather than lumped in with your restaurant rate.
GST on Alcoholic Beverages
Alcoholic beverages for human consumption stay outside the GST net entirely. They’re taxed under state excise duty instead. So if your bill includes both food and alcohol, you’ll typically see GST applied only to the food portion, with state-level liquor taxes applied separately to the drinks.
How to Identify Whether You Are Supplying Food or a Restaurant Service
This distinction trips up a lot of restaurant owners. If you’re preparing and serving a meal, whether at a table or in a parcel box, that’s a restaurant service, taxed at 5% (or 18% at specified premises). But if you’re simply selling a packaged product across the counter, like a jar of pickle or a box of branded cookies, without any cooking or service element tied to it, that’s a sale of goods with its own GST rate. The test comes down to whether there’s a service component involved, not just whether food changed hands.
HSN Codes for Restaurants and Cloud Kitchens
What Is an HSN Code?
HSN stands for Harmonised System of Nomenclature, a global classification system used to categorise goods for tax purposes. For services, India uses a parallel system called SAC, or Services Accounting Code. Restaurants mostly deal with SAC codes since they’re primarily providing a service, though any packaged goods they sell separately will carry their own HSN codes.
HSN Codes for Restaurant and Catering Services
Restaurant and catering services generally fall under SAC code 9963, with further sub-classification depending on the exact nature of the service, such as 996331 for restaurant and outdoor catering services, and related codes for different formats like canteens or mess facilities.
HSN Codes for Packaged and Ready-to-Eat Food
If your restaurant or cloud kitchen also sells packaged items, each product needs its own HSN code based on what it actually is. Packaged namkeen, instant mixes, sauces, and similar retail items each sit under their own classification, separate from your restaurant service code.
HSN Codes for Bakery, Sweets and Beverages
Bakery products, confectionery, and sweets sold as standalone retail items carry their own HSN codes distinct from restaurant service codes. A bakery counter selling packaged cakes and pastries to go needs to classify those items correctly, especially if the same outlet also runs a cafe section serving food at tables.
How to Choose the Correct HSN Code for Your Menu
Start by separating your menu into two buckets: items served as part of a dine-in or cooked meal experience, and items sold as standalone packaged products. The first bucket uses your restaurant SAC code. The second needs individual HSN codes matched to each product category. When in doubt on a specific item, it’s worth checking the official GST rate finder tool or consulting a tax professional rather than guessing.
What Happens If You Use the Wrong HSN Code?
Using an incorrect code isn’t just a paperwork slip. It can lead to charging the wrong GST rate, which creates a mismatch between what you’ve collected and what you owe, and it can also trigger scrutiny notices during return filing or audits. Wrong codes on your GSTR-1 can also cause your buyers’ ITC claims to get flagged, which is particularly relevant if you cater to corporate clients. Getting this right from day one saves a lot of correction work later.
GST Invoicing for Restaurants and Cloud Kitchens
When to Issue a GST Tax Invoice
Once registered, every taxable sale needs an invoice. For restaurants, this usually means a bill generated at the point of sale, whether that’s a printed receipt handed to a dine-in customer or a digital invoice attached to a delivery order.
Mandatory Details on a Restaurant GST Invoice
A valid restaurant invoice needs your GSTIN, a sequential invoice number, the date, your business name and address, a description of the items sold, the taxable value, the GST rate and amount charged, and the total payable. Missing even one of these fields can make the invoice non-compliant.
GST Invoice for Dine-In, Takeaway and Delivery Orders
The invoicing format stays largely consistent across dine-in, takeaway, and delivery, but the details can shift slightly. Delivery orders, for instance, often need a delivery address noted, and orders placed through an app may carry an order ID that should be cross-referenced on your own records for reconciliation.
Invoicing Through Zomato, Swiggy and Other Aggregators
When orders come through an aggregator, the platform usually generates the customer-facing invoice or handles the tax collection piece for restaurant services booked on its app. That said, restaurants still need to maintain their own sales records and reconcile the aggregator’s settlement reports against their books every month, since any mismatch shows up quickly when filing returns.
Credit Notes for Cancelled or Modified Orders
When an order gets cancelled after billing, or when a customer is refunded for a wrong or incomplete item, a credit note needs to be issued against the original invoice. This adjusts your tax liability correctly and keeps your records clean. Skipping this step and simply refunding money without a credit note creates a mismatch between your reported sales and actual sales.
Common Invoicing Mistakes Restaurants Make
Restaurants often slip up by not issuing invoices for small cash transactions, forgetting to maintain sequential invoice numbering, failing to separate taxable and non-taxable items (like food versus alcohol) clearly on one bill, or not reconciling aggregator payouts against their own invoice records. Each of these can cause problems when it’s time to file returns.
Input Tax Credit for Restaurants and Cloud Kitchens
What ITC Means for a Restaurant
Input Tax Credit lets a business reduce its GST liability by the tax already paid on business purchases. For most industries, this is a straightforward benefit. For restaurants, it comes with a catch tied directly to the rate you charge.
Eligible ITC on Kitchen Equipment, Rent and Utilities
A restaurant charging the concessional 5% rate cannot claim ITC on its rent, ingredients or equipment. This is the single most important thing to understand about restaurant GST. Only restaurants and caterers operating at specified premises, charging 18%, are eligible for ITC on these same expenses.
ITC on Raw Materials, Packaging and Delivery Costs
The same rule extends to raw materials, packaging boxes, and even delivery-related costs. If you’re on the 5% rate, none of this GST comes back to you as credit. It simply becomes part of your cost of doing business.
ITC Restrictions and Blocked Credits for Restaurants
Beyond the rate-linked restriction, certain items remain blocked from ITC claims for any business, restaurant or otherwise, such as GST paid on certain motor vehicles, food and beverages purchased for employee consumption in specific circumstances, and a few other categories listed under the blocked credit provisions. It’s worth knowing these apply on top of the 5%-rate restriction, not instead of it.
How to Reconcile ITC With GSTR-2B
For restaurants operating at 18% with ITC eligibility, matching your purchase records against GSTR-2B every month is essential. GSTR-2B shows the credit your suppliers have reported against your GSTIN, and only credit that appears there, and meets the eligibility conditions, can safely be claimed in your return.
Common ITC Mistakes Restaurants Make
The biggest and most frequent mistake is a 5%-rate restaurant accidentally claiming ITC anyway, usually because accounting software defaults to showing credit on every purchase invoice without flagging the restriction. Other common errors include claiming credit on blocked categories, or claiming credit that doesn’t show up in GSTR-2B because the supplier hasn’t filed their own return correctly.
GST for Cloud Kitchens: Special Considerations
GST Registration for Home-Based Cloud Kitchens
A cloud kitchen run out of a residential space still needs to register once it crosses the turnover threshold or sells through an aggregator, exactly like a commercial kitchen. The address used for registration should reflect where the food is actually being prepared, and local municipal or FSSAI approvals for operating a kitchen from that premises should be in place too.
GST for Multi-Brand Cloud Kitchens
Many cloud kitchens run several virtual brands out of one physical kitchen, say, a biryani brand and a separate dessert brand, both cooked in the same space. GST registration is tied to the business entity and premises, not to each individual brand name, so one registration generally covers all brands operated from that kitchen under the same legal entity.
GST for Kitchen-on-Rent and Shared Kitchen Models
Shared or rented kitchen setups, where multiple cloud kitchen operators use the same commercial space, need each operator to register separately under their own GSTIN if they’re independently billing customers. The kitchen owner renting out the space also has their own GST obligations on the rental income, which is a separate taxable service.
GST for Cloud Kitchens Selling Through Aggregators
Since cloud kitchens, by nature, rely heavily on delivery platforms, the aggregator tax collection rules that apply to regular restaurants apply here too. The platform handles tax collection on orders placed through its app, while the kitchen still needs to track every order for its own reconciliation and return filing.
Invoicing When the Platform Collects Payment
When the platform collects the customer’s payment and later settles the net amount to the kitchen, the kitchen still needs to record the full sale value for its own books, not just the settled amount after platform commission. Treating the net settlement as the full sale value is a reconciliation error that shows up during audits.
Common GST Mistakes Cloud Kitchens Make
Cloud kitchens often underestimate how quickly turnover crosses the registration threshold once they’re listed on two or three delivery apps simultaneously. Other frequent issues include not reconciling platform payout statements against actual order volumes, and treating commission deducted by the platform as an expense without properly accounting for the GST angle on that commission.
Composition Scheme for Restaurants and Cloud Kitchens
What Is the Composition Scheme?
The composition scheme is a simplified tax option for small businesses. Instead of charging GST on every invoice and filing detailed monthly returns, eligible businesses pay a flat percentage of their turnover and file quarterly instead.
Eligibility Criteria for Restaurants and Cloud Kitchens
Restaurants with an aggregate turnover up to Rs 1.5 crore can opt for the composition scheme. The business also needs to operate only within one state, since composition dealers generally can’t make interstate outward supplies.
GST Rate Under the Composition Scheme
Restaurants under composition pay GST at a flat 5% (2.5% CGST plus 2.5% SGST) on turnover, without charging GST separately to customers and without claiming ITC. This 5% rate is specific to restaurant services and is more favourable than the flat rates available to other service businesses under composition.
Composition Scheme vs Regular Scheme: Which Is Better?
This comes down to your cost structure. Composition means simpler compliance and quarterly filing, but no ITC claim at all, on anything. If your restaurant has significant input costs, like heavy equipment purchases or substantial rent, and you expect to eventually operate from specified premises, the regular scheme with ITC might work out cheaper over time. For a small, simple operation with modest expenses, composition often makes more sense.
ITC Restrictions Under the Composition Scheme
Composition dealers cannot claim any input tax credit, full stop. This mirrors the restriction already faced by regular 5%-rate restaurants, so for most standalone eateries already paying 5% without ITC, moving to composition mainly changes the compliance burden rather than the tax cost itself.
How to Opt In or Out of the Composition Scheme
Switching into or out of the composition scheme is done through a declaration filed on the GST portal, typically at the start of a financial year. Once opted in, a business generally has to stay in the scheme for the full year unless it crosses the eligibility threshold mid-year, in which case it must switch to the regular scheme from that point onward.
GST Returns for Restaurants and Cloud Kitchens
GSTR-1 for Reporting Sales and Invoices
GSTR-1 captures details of all outward supplies, essentially every sale invoice issued during the period. For restaurants, this means reporting both dine-in and delivery sales accurately, matched against the invoices actually raised.
GSTR-3B for Tax Payment and ITC
GSTR-3B is the summary return where tax liability gets calculated and paid, along with any eligible ITC claimed. For our detailed, step-by-step filing workflows, see our dedicated guides on GSTR-1 and GSTR-3B.
Monthly vs Quarterly Filing Under QRMP
Smaller restaurants and cloud kitchens with turnover under the prescribed limit can opt into the QRMP scheme, filing GSTR-1 and GSTR-3B quarterly instead of monthly, while still paying tax monthly through a simplified challan. This reduces the filing frequency without changing the tax timeline.
Annual Return and Compliance Calendar
Beyond monthly or quarterly returns, most registered restaurants also need to file an annual return summarising the full year’s transactions. Keeping a simple compliance calendar, marking out monthly, quarterly, and annual deadlines, helps avoid last-minute scrambling. Read our full breakdown on nil returns and due dates for the complete schedule.
What Happens If a Restaurant Misses a GST Return?
Missing a return deadline triggers late fees that accumulate daily, along with interest on any unpaid tax. Repeated non-filing can also lead to the suspension or cancellation of your GSTIN, which stops you from issuing valid invoices and can get your listing pulled from delivery platforms that require an active GST registration.
Reverse Charge Mechanism for Restaurants
What Is Reverse Charge in GST?
Under reverse charge, the recipient of a supply pays the GST directly to the government instead of the supplier charging it. This flips the usual collection responsibility and applies to specific, notified categories of supplies.
Services Commonly Covered Under RCM for Restaurants
Restaurants can encounter reverse charge in a few common scenarios, such as certain services received from unregistered suppliers in notified categories, legal services from an advocate, or services from a goods transport agency for logistics and delivery-related transport, depending on the specific arrangement.
How to Report RCM Liability in GST Returns
Tax paid under reverse charge needs to be reported separately in GSTR-3B and paid in cash, it can’t be settled using existing input tax credit. Restaurants on the 5% no-ITC rate still need to pay RCM liability where applicable, even though they can’t claim credit against their regular output tax.
RCM vs Forward Charge: Practical Difference
Under forward charge, the supplier bills you with GST included, and you simply pay that invoice. Under reverse charge, no GST appears on the supplier’s invoice at all, and the responsibility to calculate, report, and pay that tax shifts entirely to you as the recipient. Restaurants need to actively identify which of their purchases fall under RCM rather than assuming every bill already includes the tax.
GST Compliance Checklist for Restaurants and Cloud Kitchens
Common GST Mistakes Restaurants and Cloud Kitchens Should Avoid
Using the Wrong HSN Code for Food Items
Mistake: Applying a generic or incorrect SAC code across the whole menu without separating service items from packaged goods.
Consequence: Wrong tax rates get charged, and mismatches show up during return filing or scrutiny.
How to Avoid It: Review your menu item by item and assign codes based on whether each item is a cooked service or a standalone packaged product.
Applying the Wrong GST Rate to Dine-In vs Delivery
Mistake: Assuming delivery orders get a different, lower rate than dine-in.
Consequence: Under or over-charging customers, leading to liability mismatches.
How to Avoid It: Remember that the rate follows your restaurant’s classification (standalone or specified premises), not the order channel.
Claiming Ineligible Input Tax Credit
Mistake: A 5%-rate restaurant claiming ITC on rent, ingredients, or equipment anyway.
Consequence: This invites notices and demands for reversal with interest once identified.
How to Avoid It: Configure your accounting system to block ITC claims entirely if you’re on the no-ITC rate.
Ignoring Reverse Charge Liability
Mistake: Overlooking RCM-applicable purchases and not reporting that liability.
Consequence: Unpaid tax accumulates, along with interest, and surfaces during audits.
How to Avoid It: Maintain a checklist of common RCM categories and review supplier invoices against it regularly.
Missing Return Deadlines or Clarification Notices
Mistake: Treating monthly filing as a low-priority task, or missing a department notice seeking clarification.
Consequence: Late fees, interest, and in serious cases, GSTIN suspension.
How to Avoid It: Set calendar reminders well ahead of due dates and check the GST portal’s notices section regularly.
Not Reconciling Aggregator Sales With Own Records
Mistake: Relying solely on the platform’s payout statement without cross-checking order-level data.
Consequence: Sales get underreported or overreported, creating discrepancies in GSTR-1 and GSTR-3B.
How to Avoid It: Reconcile aggregator reports against your internal order records every month before filing.
Benefits of GST Registration for Restaurants
Sell Through Zomato, Swiggy and Other Platforms
Most major food delivery platforms require a valid GSTIN before onboarding a restaurant, making registration a practical necessity for reaching delivery customers.
Claim Input Tax Credit on Business Purchases
Restaurants operating at specified premises and paying 18% can offset GST paid on rent, equipment, and raw materials against their output liability, genuinely reducing their net tax outgo.
Serve Corporate Clients and Catering Orders
Corporate clients and event organisers typically need a proper GST invoice to claim their own credits, so registration opens up catering and bulk order business that would otherwise be out of reach.
Build Credibility and Formalise the Business
A visible GSTIN on your invoices signals a properly run, compliant business, which matters when dealing with landlords, suppliers, and larger clients.
Access B2B and Bulk Order Opportunities
Registered restaurants can bill other businesses directly, unlocking catering contracts, office tie-ups, and bulk supply arrangements that unregistered outlets typically can’t service.
For a fuller look at these advantages and the step-by-step process, see our guide on GST registration.
FAQs on GST for Restaurants and Cloud Kitchens
Do all restaurants need GST registration?
Only once turnover crosses Rs 20 lakh in a year (Rs 10 lakh in special category states), or if specific conditions like interstate supply or aggregator sales apply regardless of turnover.
What is the GST rate for restaurant food?
Generally 5% without ITC for standalone restaurants and non-specified premises. Restaurants at specified premises, where room tariffs exceed Rs 7,500 a night, charge 18% with ITC.
Do cloud kitchens need GST registration?
Yes, the same turnover threshold and aggregator-related rules that apply to regular restaurants apply equally to cloud kitchens.
How is GST charged on Zomato and Swiggy orders?
The aggregator platform is responsible for collecting and depositing GST on restaurant services booked through its app, though restaurants still need to track these sales for their own records.
Can restaurants claim ITC on ingredients and kitchen equipment?
Only if they’re charging 18% at specified premises. Restaurants on the 5% rate cannot claim ITC on these expenses.
Is the composition scheme good for small restaurants?
It can be, especially for simple operations with modest expenses, since it simplifies compliance to quarterly filing. But it comes with a complete ITC bar, so it’s worth comparing against the regular scheme based on your actual cost structure.
Which HSN code should a restaurant use?
Restaurant and catering services generally fall under SAC code 9963, with specific sub-codes depending on the exact service type. Packaged goods sold separately need their own distinct HSN codes.
Get GST Registration and Compliance Support for Your Restaurant
Running a restaurant or cloud kitchen comes with enough on your plate without getting tangled in GST paperwork. Whether you need help with registration, figuring out the right HSN codes for your menu, setting up compliant invoicing, or staying on top of monthly return filing, our team can take this off your hands. Reach out for GST registration assistance, HSN-code guidance, invoicing support, return filing, and ongoing compliance help tailored to your restaurant or cloud kitchen