1. Introduction
The 56th GST Council Meeting held on 3 September 2025 introduced major reforms to simplify India’s GST structure. Effective from 22 September 2025, through Notification No. 10/2025 – Central Tax (Rate), the GST Council rationalised rates for restaurant, catering, and hotel-based food services under a unified 5% rate without Input Tax Credit (ITC).
This detailed Handout explains the changes affecting restaurants, cafés, hotels, and caterers under the “GST 2025 Reforms”.
2. GST Rate Changes on Restaurant & Food Services
Before 22 September 2025, there existed multiple rates creating confusion for the hospitality sector:
| Type of Service (Before 22 Sept 2025) | GST Rate | ITC Availability |
|---|---|---|
| Standalone restaurants (AC/Non-AC) | 5% | No ITC |
| Restaurants within hotels (room tariff ≥ ₹7,500) | 18% | With ITC |
| Normal/composite outdoor catering within such hotels | 18% | With ITC |
| Food delivery services (through platforms like Swiggy, Zomato) | 18% | With ITC |
After 22 September 2025, as per the revised rate notification, all of these services are brought under a uniform 5% GST rate without ITC.
| Type of Service (After 22 Sept 2025) | New GST Rate | ITC Availability | Reference |
|---|---|---|---|
| All standalone restaurants (AC/Non-AC) | 5% | Not available | Notification 10/2025-CT (Rate) |
| Restaurants within hotels (room tariff ≥ ₹7,500) | 5% | Now Not Available | PIB Press Release 03.09.2025 |
| Restaurants within hotels (room tariff more than or equal to ₹7,500) | 18% | Available | |
| Outdoor catering & banquets (including hotel catering) | 5% | Now Not Available | Notification 10/2025-CT (Rate) |
| Food delivery services | 18% | Available |
3. Clarification on “Specified Premises”
Previously, restaurants located in hotels charging room tariffs above ₹7,500 were classified as “specified premises” and taxed at 18% with ITC. The GST Council has now clarified that:
A stand-alone restaurant cannot declare itself as a ‘specified premises’ and cannot avail the 18% rate with ITC. All restaurant-type services will attract 5% GST without ITC.
This removes the earlier dual-rate confusion. Even 5-star hotel restaurants are now taxed at a uniform 5% rate without ITC.
4. Legal & Notification Background
- Notification No. 10/2025 – Central Tax (Rate) dated 17 Sept 2025 – Amends principal Notification 11/2017 to prescribe 5% without ITC for all restaurant, catering, and food delivery services.
- PIB Press Release 03 Sept 2025 – Confirms uniform rate and adds clarification on “specified premises”.
- Effective Date: 22 September 2025 (as per Clause III of PIB release).
5. Input Tax Credit (ITC) Restrictions
From 22 September 2025, restaurants, hotels, and caterers cannot claim ITC on any of the following:
- Purchase of kitchen equipment, ovens, or furniture
- Renovation or construction of restaurant premises
- Rent, advertising, consultancy, and maintenance services
- Outdoor catering inputs such as crockery, food materials, or services
- Food delivery-related logistics and packaging costs
This has particularly impacted premium hotels and large banquet operators that previously availed ITC at 18%.
6. Transitional Adjustments for Businesses
Entities charging 18% with ITC till 21 September 2025 must:
- Reverse ITC on stock, inputs, and capital goods as on 21 September 2025 under Section 18(4) of the CGST Act.
- Report reversal in GSTR-3B of September 2025.
- Adjust menu pricing or service contracts to reflect post-reform rates.
- Ensure invoices clearly state “GST @5% without ITC”.
7. Example – Cost Impact on Restaurant
| Particulars | Earlier (18% with ITC) | Now (5% without ITC) |
|---|---|---|
| Food Sale | ₹10,00,000 | ₹10,00,000 |
| Output GST | ₹1,80,000 | ₹50,000 |
| Eligible ITC | ₹70,000 | Nil |
| Net GST Payable | ₹1,10,000 | ₹1,40,000 (effective) |
Even with a reduced rate, loss of ITC increases total tax cost, especially for hotel-based or capital-intensive restaurants.
8. Impact on Different Restaurant Categories
| Category | Impact |
|---|---|
| Standalone Restaurants | No change – continue 5% without ITC |
| Hotel Restaurants (Tariff ≥ ₹7,500) | Significant impact – ITC withdrawal increases cost |
| Outdoor Catering / Banquets | Adverse – earlier 18% with ITC, now 5% without ITC |
| Food Delivery Services | Now 5% without ITC – cost impact on aggregators |
| Canteen / Mess | Continue at 5% without ITC |
9. Common Questions
Q1: Can restaurant owners claim ITC on rent or interiors after 22 Sept 2025?
👉 No. All such credits are blocked once the service is taxed at 5%.
Q2: Can hotel restaurants continue charging 18% voluntarily?
👉 No. The Council has eliminated this option for uniformity.
Q3: Is takeaway and online delivery also taxed at 5%?
👉 Yes. Delivery, takeaway, and cloud kitchens now fall under 5% without ITC.
10. Sectoral Outlook – FY 2025–26
| Aspect | Outlook |
|---|---|
| Tax Rate | Uniform 5% for all restaurant/catering services |
| ITC Position | Fully blocked |
| Compliance | Simplified returns, less reconciliation |
| Consumer Pricing | Stable but depends on menu revision |
| MSME Benefit | Rate uniformity helps small restaurants |
| Large Hotel Chains | Adverse margin impact due to blocked ITC |
11. Summary Table
| Aspect | Before 22 Sept 2025 | After 22 Sept 2025 |
|---|---|---|
| Restaurant within hotel | 18% with ITC | 5% without ITC |
| Outdoor catering (hotel/composite) | 18% with ITC | 5% without ITC |
| Food delivery services | 18% with ITC | 5% without ITC |
| Standalone restaurants | 5% without ITC | 5% without ITC |
| ITC availability | Allowed selectively | Completely blocked |
| Compliance | Moderate | Simplified |
12. Conclusion
The GST 2025 reforms have unified the tax rate for restaurant services at 5% across India. While this simplifies compliance and ensures rate parity, it also eliminates ITC benefits for hotel-based restaurants, caterers, and food delivery operators.
Summary:
✅ Consumers gain from uniform GST rates.
❌ Businesses face higher costs due to ITC blockage.
✅ Compliance is easier with a single rate.
Restaurant owners should revise pricing and contracts in line with the new structure effective 22 September 2025.
13. References
- Press Information Bureau (PIB) Release dated 03 Sept 2025 – “Recommendations of the 56th GST Council Meeting.”
- Notification No. 10/2025 – Central Tax (Rate) dated 17 Sept 2025.
