Which GST rate goes on a restaurant bill: 5%, 18% and the ITC rule

The two rates a restaurant can charge

For restaurant service, Notification No. 11/2017-Central Tax (Rate) gives two outcomes. A restaurant that is not inside a specified premises charges 5% GST, and the condition is that it does not take input tax credit on the goods and services it uses to supply that service (entry 7(ii)). A restaurant inside a specified premises charges 18% and may take credit (entry 7(vi)).

A specified premises is, broadly, a hotel or similar property where a unit of accommodation was supplied above the prescribed daily value. If you run a standalone restaurant, a café, a cloud kitchen or a food court counter, the 5% route is the one that normally applies to you. Which route you are on is a tax position, so confirm it with your CA before you set it in software.

• Standalone restaurant, café, cloud kitchen: 5% GST, no input tax credit
• Restaurant inside a specified premises: 18% GST, with input tax credit
• The rate is a property of the outlet, not of each dish

What “without ITC” means on a normal Tuesday

It means the GST you pay on the gas, the packaging, the equipment repair and the rent is a cost, not something you subtract from the GST you collect. Your purchase bills still matter for food cost and for your accounts, but you do not claim the tax on them against the 5%.

The place this bites is a business that does more than one thing. Where inputs are used partly for restaurant service and partly for something else, the notification asks for credit to be reversed in proportion, as if the restaurant part were exempt. That is a calculation for your accountant, and it is easier when each activity bills separately and the records are clean.

How the 5% shows up on the bill

At 5%, the tax is split into two equal halves, 2.5% CGST and 2.5% SGST, when the sale is within one state. The bill should show the taxable value, each half of the tax, and the total, so the guest and your auditor can both reconcile it without a calculator.

The mistake to avoid is a rate typed by hand on individual items. One cashier edits an item to 18% for a catering order, another leaves it at 5%, and the monthly return stops matching the till. The rate should come from the outlet's tax setting, and a change to it should be deliberate and recorded.

• Tax rate set once per outlet, not per bill
• CGST and SGST shown separately with the taxable value
• A change of tax setting is logged with who made it and when

Where billing software earns its place

Software cannot decide which route you are on. What it can do is apply the same rate to every bill from an outlet, keep one invoice series, print the split cleanly, and give you a tax summary at month end that already adds up to the bills.

If you run more than one outlet, check that each can carry its own tax setting. A hotel restaurant and a standalone café under one owner are two different positions, and one global rate will be wrong for one of them.

Check the notification, not a forwarded message

GST rates for hospitality have been revised more than once in recent years, and a forwarded image of a rate card is rarely dated. Before you change a setting, read the current notification or ask your CA to confirm it in writing.

This article explains the structure. It is not tax advice for your business.