A restaurant owner in India faces a tax decision most other businesses never have to make: charge 5% GST and lose input tax credit entirely, or charge 18% and keep it. Get that choice wrong, or misunderstand how food delivery platforms handle tax on your behalf, and it shows up directly in your margins, not just in a compliance report.
This guide covers the licenses a food and beverage business needs, how GST rates and the ITC trade-off work for restaurants and cloud kitchens, how Section 9(5) shifts tax responsibility to Zomato and Swiggy, and the mistakes that most often cost food businesses money.
Licenses a Food and Beverage Business Needs
FSSAI License or Registration. Mandatory for every food business operator in India without exception, from a home baker to a large food processing plant. The category depends on turnover: Basic Registration for businesses up to ₹12 lakh (some categorisations extend Basic up to ₹1.5 crore for certain restaurant formats), State License for annual turnover between roughly ₹12 lakh and ₹20 crore, and Central License above that or for businesses involved in import, export, or operating across multiple states. The 14-digit FSSAI number has to be displayed on the premises board, on packaging, and on the menu.
Health or Trade License. Issued by the local municipal corporation, certifying that the premises meets hygiene and sanitation standards. Required for restaurants, cafés, food stalls, and cloud kitchens alike.
Eating House License. Required in several major cities, including Delhi, Mumbai, Kolkata, and Chennai, issued by local police or municipal authority, and typically needing clearance from the health department, fire department, and local police station before issue. Not every state requires this separately, so it's worth checking local rules before assuming it doesn't apply.
Fire NOC. Required from the fire department, especially for AC restaurants and any establishment with a commercial kitchen, confirming fire safety equipment and exits meet the required standard.
Shop and Establishment Registration. Mandatory under the state Shops and Establishments Act for virtually every food business with a physical premises or employees.
Liquor License. A separate, state-specific, and often lengthy process if the business plans to serve alcohol, entirely independent of the food licenses above.
FoSTaC Certification. State and Central FSSAI license holders need at least one FoSTaC-certified Food Safety Supervisor for roughly every 25 food handlers on staff, which is a training requirement rather than a one-time registration.
GST Registration. Covered in detail below.
Read our complete GST registration process guide, the documents required for GST registration, and if you're running the business as a sole proprietor, our GST documents for proprietorship guide. Our NIC code list helps you pick the right activity code for restaurant, catering, or food processing operations.
GST Registration Rules for Food and Beverage Businesses
Registration is mandatory once turnover crosses ₹20 lakh (₹10 lakh in special category states), the standard threshold for services, since restaurant and catering services fall under the services classification. It's also mandatory from the first rupee of turnover if the business lists on a food delivery platform like Zomato or Swiggy, since that counts as selling through an e-commerce operator. Our GST turnover limit guide covers how aggregate turnover is calculated.
Composition Scheme. Small, single-location restaurants with turnover up to ₹1.5 crore can opt for a flat 5% GST under the Composition Scheme, with quarterly payment and simpler annual filing instead of monthly returns. This works well for a small dine-in-only outlet with mostly local, individual customers, but it complicates listing on aggregator platforms and rules out issuing tax invoices to corporate clients who need their own ITC. See our full GST Composition Scheme guide to check eligibility.
GST Rates for Restaurants, Cloud Kitchens, and Catering
Most food service businesses in India, regardless of format, sit at a flat 5% GST rate without input tax credit. This covers standalone restaurants, cafés, dine-in, takeaway, and cloud kitchens, whether AC or non-AC, a distinction that was actually removed back in November 2019. Cloud kitchens are treated the same way as any other restaurant offering only delivery or takeaway, under CBIC's clarification that delivery-only food preparation still qualifies as a restaurant service.
There's one significant exception: restaurants located inside a hotel where the declared room tariff is ₹7,500 or more per night charge 18% GST, and get full input tax credit in return. Outdoor catering services are also taxed at 18% with ITC, regardless of where the hotel or venue's room tariff sits. This creates a genuine strategic choice for any food business with meaningfully high ingredient, packaging, or equipment costs: staying at 5% keeps the headline tax rate low but forfeits credit on everything purchased, while a business that qualifies for and elects the 18% route (where applicable, such as catering) can often come out ahead once ITC on raw materials, kitchen equipment, and rent is factored in.
Packaged and branded food products sit outside this restaurant-specific structure and are taxed based on the product itself, generally at 5% or 18% depending on the level of processing and whether it's branded, following the same HSN-based classification that applies to any packaged good. See our HSN and rate structure guide and GST 2.0's new rates for how the September 2025 reform consolidated several packaged food categories that used to sit in the now-discontinued 12% bracket.
Section 9(5): How Zomato and Swiggy Handle GST
Since January 1, 2022, food delivery platforms are classified as e-commerce operators under Section 9(5) of the CGST Act for restaurant services booked through them, which makes the platform itself responsible for collecting and depositing 5% GST on the food portion of every delivery order, not the restaurant. This is a genuine shift in legal liability, not just a billing convenience: the platform pays the government directly.
A separate, standard 18% GST applies to the delivery fee and any platform fee charged to the customer, which is unrelated to the restaurant's own tax position. Following the September 2025 GST 2.0 reforms, local e-commerce delivery services were also brought under the 18% bracket, which is part of why delivery fees on Zomato and Swiggy rose modestly in late 2025 and into 2026.
Critically, even though the platform pays the 5% GST on your behalf, your restaurant still has to be GST-registered to list on the platform at all, and you still have to report these aggregator sales in your own GSTR-3B, specifically under Table 3.1.1(ii), which exists exactly for this category of supply. A restaurant that assumes "the platform paid the tax, so I don't need to report it" is making a reporting error that shows up as a mismatch between platform data and your own returns.
Input Tax Credit and Commission Reconciliation
ITC is blocked at 5%. Restaurants charging 5% GST, whether independently or through the composition scheme, cannot claim input tax credit on ingredients, packaging, rent, utilities, or kitchen equipment. Only restaurants charging 18%, catering services, and hotel restaurants above the room tariff threshold get ITC. See our guides on how to calculate input tax credit, whether ITC applies to all purchases, and the 180-day payment rule under Section 16(2) for the broader framework this sits within.
Aggregator commission isn't creditable at 5%. Zomato and Swiggy typically deduct a 15-30% commission from each order before settlement, and that commission itself carries 18% GST. A restaurant on the 5% no-ITC rate cannot claim this 18% GST back either, even though it's genuinely paying it as part of doing business on the platform. This is one of the least understood costs in aggregator-based food delivery, since it's buried in the settlement statement rather than shown as a separate line the restaurant pays directly.
Reconcile settlement reports against your own POS regularly. Since the platform handles food GST directly, your own books need to separately track gross order value, commission deducted, GST on commission, and net settlement, and match this weekly or fortnightly against your point-of-sale system and bank credits. The Invoice Management System is useful for reconciling supplier-side invoices for ingredients and packaging alongside this.
Common GST Mistakes in Food and Beverage Businesses
Defaulting to 5% without comparing the 18% option. Many restaurant owners assume 5% is automatically cheaper because the headline rate is lower, without running the numbers on ITC recoverable at 18% for high-cost operations like catering or premium dining. For businesses with significant equipment, packaging, or ingredient spend, this default costs real money every month.
Not reporting aggregator sales in GSTR-3B. Because Zomato and Swiggy pay the 5% GST directly under Section 9(5), some restaurants stop reporting these sales altogether, assuming there's nothing left for them to file. These sales still need to be reported in Table 3.1.1(ii) of GSTR-3B, and skipping this creates a mismatch between platform-reported data and the restaurant's own returns that can trigger a notice.
Missing the hotel room-tariff threshold for restaurant GST. A restaurant inside a hotel charging the standard 5% rate, when the hotel's declared room tariff has crossed ₹7,500 per night, is charging the wrong rate. This threshold applies to the restaurant's own GST regardless of whether the diner is a hotel guest or a walk-in customer.
Listing on aggregators while under the Composition Scheme. Composition dealers face restrictions on e-commerce sales that interstate delivery through a platform can complicate, and the scheme's Bill of Supply format doesn't align cleanly with how aggregators expect tax to be handled. Restaurants that grow into significant aggregator volume often need to move off composition well before they'd otherwise choose to.
Ignoring commission GST as a real cost. Treating the 18% GST on aggregator commission as just another line in a settlement report, rather than a genuine, non-recoverable cost under the 5% scheme, leads to underpriced menus and margin surprises at month-end.
Letting FSSAI or trade license renewals lapse. These aren't GST issues directly, but food safety and municipal inspections often happen around the same time as GST audits, and a lapsed FSSAI license undermines the credibility of the whole compliance file even if the GST side is otherwise clean.
Falling behind on routine filing. Delayed returns draw GST late fees and interest, and persistent gaps can trigger GSTIN blocking, which for a restaurant listed on delivery platforms means losing the ability to transact on those platforms entirely until it's resolved. Our GST return filing guide and GST due date calendar help keep this on track, and if a notice does arrive over a Section 9(5) reporting mismatch, our GST notice reply guide explains how to respond within the deadline.
Frequently Asked Questions
Do restaurants charge 5% or 18% GST in India?
Most restaurants, cafés, and cloud kitchens charge 5% without input tax credit. The 18% rate with ITC applies only to restaurants inside hotels with a room tariff of ₹7,500 or more per night, and to outdoor catering services.
If Zomato or Swiggy pays GST on my food orders, do I still need to report them?
Yes. Under Section 9(5), the platform pays the 5% GST directly, but you still need to report these sales in Table 3.1.1(ii) of your GSTR-3B and remain GST-registered to list on the platform.
Can a restaurant claim input tax credit at the 5% GST rate?
No. ITC is blocked entirely at the 5% rate, on ingredients, packaging, rent, and equipment alike. Only businesses charging 18%, such as qualifying hotel restaurants and caterers, can claim it.
Should a restaurant use the GST Composition Scheme?
It can work well for a small, single-location, mostly dine-in restaurant with turnover under ₹1.5 crore, but it complicates listing on food delivery aggregators and rules out issuing proper tax invoices to corporate clients.
Does a cloud kitchen need the same licenses as a dine-in restaurant?
Yes, in almost every respect: FSSAI license, GST registration, trade license, fire safety certificate, and shop and establishment registration all apply the same way, even without any dine-in seating.
Get Your Food and Beverage GST Compliance Right
Between the 5% versus 18% ITC trade-off, Section 9(5) reporting for aggregator sales, commission GST that quietly eats into margins, and the Composition Scheme's fit-for-purpose limits, GST compliance for a food business is more of a strategic decision than a filing chore, and the wrong default choice compounds every single month.
GST Registration helps restaurants, cloud kitchens, and caterers handle GST registration, the 5%-vs-18% rate decision, Section 9(5) reconciliation, and monthly and quarterly return filing, so tax compliance doesn't eat further into already-thin restaurant margins.
Talk to a GST expert today and get your restaurant's GST rate and compliance reviewed before your next filing deadline.
About the Author
Omprakash Kumawat is an SEO & Content Specialist at Legal Dev. He combines his expertise in digital marketing and legal tech to write highly researched, engaging content on GST, taxation, and business compliance.
