Running a restaurant means juggling FSSAI licensing, a GST rate that depends on whether you're air-conditioned or not, Shop & Establishment registration, and TCS on food-aggregator payouts. Here's the full compliance picture in one place.
A restaurant is one of the few businesses that needs food safety licensing, GST registration, local shop licensing, and (increasingly) aggregator-platform tax compliance all at once — missing any one piece is a common and avoidable gap for first-time restaurant owners.
FSSAI Licensing — Which Tier Applies?
| Annual turnover | License required |
| Up to ₹12 lakh | FSSAI Basic Registration |
| ₹12 lakh – ₹20 crore | FSSAI State License |
| Above ₹20 crore, or multi-state operations | FSSAI Central License |
Operating without the correct FSSAI license (or the correct tier for your turnover) is a food safety offence independent of any tax issue, and is one of the first things inspected during any food safety compliance check.
GST Rate on Restaurant Services
Restaurant GST rates depend on the type of establishment and whether input tax credit is claimed:
| Type | GST rate |
| Standalone restaurant (AC or non-AC) | 5% (without input tax credit) |
| Restaurant within a hotel where room tariff is ₹7,500 or above | 18% (with input tax credit) |
| Outdoor catering | 18% (with input tax credit) |
Most standalone restaurants fall into the 5%-no-ITC category — meaning GST paid on rent, raw materials, and equipment cannot be claimed back as input tax credit, unlike most other GST-registered businesses. This is a deliberate trade-off built into the rate structure, not an error, but it changes the actual cost-benefit of registration compared to other service businesses.
Shop & Establishment Registration
Every restaurant, regardless of size, needs to register under the state's Shop & Establishment Act — this governs working hours, employee registers, holidays, and is typically the first local registration checked during any labour inspection. It's separate from both FSSAI and GST and is issued by the local municipal/labour authority rather than a central body.
TCS on Food Aggregator Payouts (Swiggy, Zomato)
Food delivery aggregators are treated as e-commerce operators under GST and are required to collect tax at source (TCS) and, for certain categories, pay GST directly on behalf of restaurants listed on their platform (this shifted with the e-commerce operator GST liability rules for restaurant services specifically) — restaurants working with aggregators should reconcile the GST/TCS reflected in aggregator statements against their own GSTR filings each period, since a mismatch here is a common, avoidable notice trigger given how much restaurant revenue increasingly flows through these platforms.
Income Tax: Presumptive Taxation for Smaller Restaurants
A restaurant business (proprietorship or partnership, not a company) with turnover up to ₹3 crore (₹2 crore under stricter conditions; the higher limit applies where at least 95% of receipts are digital) can opt for presumptive taxation under Section 44AD — 6% of digital turnover and 8% of cash turnover is presumed as taxable profit, without needing to maintain detailed books or undergo audit. This is often genuinely favourable for a restaurant with real profit margins below these presumed percentages, and significantly reduces compliance overhead for a smaller operation.
Practical Compliance Checklist for a New Restaurant
- FSSAI license (correct tier for expected turnover) before opening
- Shop & Establishment registration with the local authority
- GST registration once turnover crosses ₹20 lakh (₹40 lakh in some states, though most restaurants register early given aggregator platform requirements)
- Reconcile aggregator platform statements against GST returns each filing period
- Evaluate Section 44AD presumptive taxation against actual-books filing each year
Setting up all of this correctly before opening — rather than retrofitting compliance after an inspection or notice — is far less disruptive. Our FSSAI registration and GST registration services cover both pieces for new restaurant setups.
Frequently Asked Questions
Can a restaurant claim input tax credit on GST paid for rent and raw materials?
Most standalone restaurants are taxed at 5% GST specifically without input tax credit — this is a fixed trade-off in the rate structure, not an optional election. Restaurants within hotels charging room tariffs of ₹7,500 or above, or providing outdoor catering, are taxed at 18% and can claim input tax credit.
Does a small restaurant need FSSAI Central License?
No — FSSAI Central License is required only for large operations (above ₹20 crore turnover) or those operating across multiple states/importing food products. Most independent restaurants need only Basic Registration or a State License depending on their turnover.
Is Shop & Establishment registration the same as GST registration?
No — they're entirely separate registrations from different authorities. Shop & Establishment registration is issued by the state/local labour authority and governs employment conditions; GST registration is a central tax registration. A restaurant typically needs both, independently.
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