GST for Restaurants: Regular Rate vs Composition Scheme

Introduction

You run a restaurant or are thinking about opening one. Someone tells you about GST composition scheme. Another person says you should go for regular GST registration. You are confused: which one costs you less money? Which one is easier to manage? This article answers that one question: should your restaurant use the regular GST rate or the composition scheme?

The answer depends on your turnover (that is, how much money you make in a year before expenses) and whether you serve alcohol. Let us walk through it together.

How GST works for restaurants: the two paths

When you run a restaurant without alcohol, you have two ways to file GST. Think of them like two roads to the same destination—one is simpler but has limits, the other is more paperwork but gives you flexibility.

Regular GST scheme: You charge customers 5% CGST (Central GST) plus 5% SGST (State GST). That is 10% total tax on food, added to the bill. You file detailed returns every month. You can claim input tax credit, which means you get back the GST you paid on ingredients, utilities, and kitchen equipment. If you buy chillies for ₹10,000 and the supplier charged you ₹1,000 in GST, you can claim that ₹1,000 back from the government. This helps reduce your tax bill.

Composition scheme: You pay the government 5% of your monthly turnover as a flat tax. You do not charge customers extra GST (though you can add it to the bill—the maths stays the same). You file simpler returns. But you cannot claim input tax credit. If you buy chillies and the supplier charges ₹1,000 in GST, you lose that ₹1,000. You cannot get it back. You also cannot buy goods from other states and claim GST relief.

Composition scheme sounds simpler, but it costs more if your ingredient costs are high. Regular scheme has more forms to file, but you save money on tax if you buy a lot of supplies.

A restaurant that serves alcohol cannot use composition scheme at all. If you serve alcohol, you must register under regular GST only.

A simple example

Ramesh runs a vegetarian restaurant in Mumbai. He is deciding between regular GST and composition scheme.

His numbers:

• Monthly revenue: ₹3 lakh
• Annual turnover: ₹36 lakh
• Monthly ingredient cost: ₹1.2 lakh (supplier charges 5% GST = ₹6,000)
• Monthly utilities and rent: ₹40,000 (tax not applicable on rent, ₹2,000 GST on utilities)
• Monthly other supplies (napkins, oil, spices): ₹20,000 (supplier charges 5% GST = ₹1,000)

Under regular scheme:

• Monthly GST collected from customers: ₹3 lakh × 10% = ₹30,000
• Monthly GST paid on purchases: ₹6,000 + ₹1,000 = ₹7,000
• Input tax credit claimed: ₹7,000
• Net GST paid to government: ₹30,000 − ₹7,000 = ₹23,000

Under composition scheme:

• Monthly tax payment: ₹3 lakh × 5% = ₹15,000
• Input tax credit: ₹0 (cannot claim)
• Net GST paid to government: ₹15,000

At first, composition looks cheaper (₹15,000 vs ₹23,000). But this happens because Ramesh bought a lot of supplies with GST. If Ramesh's ingredient costs were lower, or if he had no GST-taxed purchases, regular scheme would cost less. Also, if Ramesh's turnover grows next year to ₹50 lakh, composition scheme becomes unavailable (the limit is ₹1.5 crore, but the food business has specific limits). Ramesh would have to switch to regular scheme.

Who this applies to

• Use this if: You own a restaurant, café, or food court without alcohol service
• You should read this if: Your annual turnover is below ₹1.5 crore and you are deciding on a scheme
• Ignore this if: You serve alcohol (you must use regular GST only)
• Ignore this if: Your turnover is ₹1.5 crore or more (you must use regular GST only)
• Next step: Calculate your annual turnover for the last 12 months. Check whether you buy many GST-taxed supplies. If yes, regular scheme usually saves you money. If no, composition is simpler.
• One more thing: The composition scheme vs regular GST comparison tool can help you estimate which is cheaper for your numbers.

Check your GST position

Before you choose, check your turnover. The GST registration threshold for restaurants (a service business) is ₹20 lakh per year in most states. If you are below that, you do not need to register yet—GST is optional. If you are above it, you must register, and you choose between regular and composition.

For special category states, the threshold is ₹10 lakh. Confirm your state on the GST portal. You can also run a quick check on gsthelp.in for free to see your GST position based on your monthly or yearly revenue.

Conclusion

Regular GST is better if you buy many GST-taxed supplies (ingredients, equipment, packaging). Composition scheme is simpler but more expensive if you have high input costs. If you serve alcohol, the choice is already made—you must use regular scheme. Check your own numbers: calculate your turnover and your typical monthly GST purchases. That will tell you which path saves you money. This is informational only. Confirm current rules on gst.gov.in or with a qualified CA before you register or switch schemes.