GST on food items in India can be 5%, 12%, or 18% based on factors such as the establishment type and location of restaurants or food service providers among others. Goods and services tax has replaced the VAT and Service tax regime on food services. However, the point to note here is the service charge by restaurants is separate from GST.

Alcoholic beverages have applicable Value Added Tax, which is a state-level tax, therefore restaurants serving both food and alcoholic beverages will levy separate taxes with GST applying to food and non-alcoholic beverages; however, VAT will be charged on alcoholic beverages served. 

GST on food items is applicable to the purchase of items by the common man which currently features rates ranging from nil to 18% GST.

What were the Original GST Rules for Restaurants?

When the GST was first launched in July 2017, restaurants could fall into three different rate slabs. If the restaurant did not have air conditioning, the GST charged was 12%. For a restaurant with AC or a liquor license, 18% GST is applicable. For restaurants within five-star hotels, the GST rate was set at 28%, and at that time, all Indian restaurants in India could take advantage of the input tax credit. 

This implies that when you paid GST while buying supplies for your restaurant, you could subtract that amount from your tax bill. That helped reduce costs for many restaurants.

 GST rates on Food, Beverage Services, and Accommodation

Description	Applicable GST Rate
Food services provided by restaurants including takeaway facility (both air-conditioned and non-a/c)	5% with No ITC
Any food/drink served at cafeteria/canteen/mess operating on a contract basis in the office, industrial unit, or by any school, college, etc on basis of a contractual agreement that is not event-based or occasional	5% with No ITC
Services provided by restaurants within a hotel with a room tariff of less than Rs. 7,500	5% with No ITC
Services provided by restaurants within a hotel with a room tariff of Rs. 7,500 or more	18%
Meals/food services provided by Indian Railways/IRCTC or their licensees both in trains or at platforms	5% with No ITC
Food services provided on a premise arranged for organizing function along with renting of such premises	18%
Food services provided at exhibitions, events, conferences, and outdoor & indoor functions that are event-based or occasional in nature	18%
Other Accommodation, food, and beverage services	18%

Furthermore, a decrease in the effective tax on restaurant bills was also evident to customers after GST implementation. But the decrease in the cost for those who are eating out was observed to be marginal at best. However, the service charge has not been affected by GST and is still applied by the restaurant.

For restaurant owners, the Input Tax credit or ITC was expected to increase the working capital availability for restaurants after the implementation of GST. On the contrary, The introduction of GST brought with it the removal of the Input Tax Credit or the ITC. This implies that the GST they paid on raw materials and rent could not be claimed. 

Later, certain amendments were made which reduced the ITC benefit for restaurant owners. However, it is notable that, under current GST rules, this ITC benefit is available only to those charging 18% GST, while restaurants/eateries charging 5% GST on food services do not receive ITC benefits.