The GST 2.0 reforms introduced in 2025 aimed to simplify India’s indirect taxation landscape, primarily by moving towards a simplified two-slab structure of 5% and 18%. It has significantly affected a lot of services in India, including restaurant food and dine-outs.
These reforms, effective from September 22, 2025, were intended to promote affordability and ease of living. While the most buzz focused on cuts on cars and consumer durables, the restructuring made a huge impact on the services sector, including how food and beverages are taxed at restaurants.
The GST structure for restaurants is complex, varying based on the establishment’s location and whether it claims Input Tax Credit (ITC).
However, understanding these rates can prove to be helpful for both consumers paying the final bill and business owners planning their operations. Read on to learn more about the impact of GST on restaurants and how it can affect your next dine-out experience.
The Simplified GST Structure for Dining Services
The new GST rates on restaurant services replaced the old, complicated system of multiple taxes like VAT and Service Tax.
When GST was first introduced, restaurants were taxed at different rates depending on factors such as air conditioning, liquor licence, or hotel category.
Today, the structure is simpler, with just two main GST rates for food and beverage services.
The key difference now is the Input Tax Credit (ITC). This allows restaurant owners to claim credit for the GST they pay on things like raw materials, rent, or equipment, helping reduce overall costs.
Here is a complete overview of how the new and old GST compare for restaurants:
| Items | Old GST (Initial Launch Rate/Prior Structure) | New GST (Post-Sept 2025 Structure) | GST Difference (Reduced/Increased) |
| Standalone Restaurants
(AC or Non-AC, Dine-in & Takeaway) | 12%
(Non-AC, with ITC option) 18% (AC/Liquor, with ITC option) | 5%
(No Input Tax Credit) | Reduced
(Significant drop in consumer incidence from 12%/18% to 5%) |
| Restaurants within Hotels
(Room Tariff < ₹7,500) | 18%
(Generally, with the ITC option) | 5%
(No Input Tax Credit) | Reduced
(Consumer incidence reduced by up to 13%) |
| Restaurants within Hotels
(Room Tariff ≥ ₹7,500) | 28%
(Initial Five-star hotel rate) | 18%
(With Input Tax Credit) | Reduced
(10% on consumer bill) |
| Outdoor Catering Services | Generally 18%
(with ITC option) | 18%
(With Input Tax Credit) | Maintained |
| Food Service in Trains/IRCTC | N/A | 5%
(No Input Tax Credit) | Set at a concessional rate |
Most diners at standalone restaurants pay a flat 5% GST rate, with no option for Input Tax Credit (ITC).
This makes billing easier compared to the old system of VAT and Service Tax. The same 5% GST (without ITC) also applies to food served on trains or at railway platforms by Indian Railways/IRCTC.
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Price Impact of GST 2.0 on Dining Services
The rollout of GST 2.0 simplified restaurant taxes and reduced dining costs for consumers. Here’s a quick comparison using a ₹1,000 pre-tax bill:
| Items | Before GST 2.0
For a pre-tax bill of ₹1,000 | After GST 2.0
For a pre-tax bill of ₹1,000 | Savings |
| Standalone Restaurants | ₹1,180 (12–18%) | ₹1,050 (5%) | ₹130 |
| Hotel Restaurants (under ₹7,500 tariff) | ₹1,180 (18%) | ₹1,050 (5%) | ₹130 |
| Hotel Restaurants (≥ ₹7,500 tariff) | ₹1,280 (28%) | ₹1,180 (18%) | ₹100 |
| Outdoor Catering | ₹1,180 (18%) | ₹1,180 (18%) | No change |
| Trains / IRCTC | N/A | ₹1,050 (5%) | Concession |
From April 1, 2025, restaurants inside hotels classified as specified premises will be taxed at 18% GST. Other hotels can either continue with 5% or opt for 18% if they want to claim ITC.
Lower Taxes, Bigger Savings for Diners
With the latest GST 2.0, the overall tax burden on eating out has dropped sharply from about 20.5% under the old VAT and Service Tax system to just 5% today. This makes dining more affordable for customers.
At the same time, GST 2.0 has reduced rates on many food and beverage items, cutting input costs for restaurants.
The benefit flows through the value chain, helping not only consumers but also MSMEs, food processors, and retailers.
Here is an overview of the new GST Rates on Key Food/Beverage Items:
| Items | Old GST | New GST | GST Difference (Reduced/Increased) |
| Ice cream and edible ice | 18% | 5% | Reduced (13%) |
| Plant-based milk drinks (e.g., almond milk) | 18% | 5% | Reduced (13%) |
| Sauces and condiments (e.g., curry paste, mayonnaise) | 12% | 5% | Reduced (7%) |
| Beverages containing milk (e.g., flavoured milk) | 12% | 5% | Reduced (7%) |
| Chocolates & cocoa products | 18% | 5% | Reduced (13%) |
| Paratha, Parotta | 18% | Nil | Reduced (18%) |
| UHT Milk | 5% | Nil | Reduced (5%) |
These reductions mean staples used by restaurants, like milk derivatives, sauces, and desserts, are now cheaper, potentially easing menu pricing.
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Price Impact of GST 2.0 on Packaged Food & Dairy Products
Here’s how GST 2.0 has reduced tax rates on popular food and beverage items:
| Items | Before GST 2.0 | After GST 2.0 | Change |
| Ice Cream | 18% | 5% | 13% |
| Plant-Based Milk | 18% | 5% | 13% |
| Sauces & Condiments | 12% | 5% | 7% |
| Flavoured Milk | 12% | 5% | 7% |
| Chocolates & Cocoa | 18% | 5% | 13% |
| Paratha / Parotta | 18% | Nil | 18% |
| UHT Milk | 5% | Nil | 5% |
The Exception: Higher Taxes on Beverages
While most food items became cheaper, the government intensified its focus on discouraging the consumption of ‘sin’ and harmful goods. Consequently, GST rates on certain non-alcoholic beverages were significantly increased:
| Items | Old GST | New GST | GST Difference (Reduced/Increased) |
| Carbonated beverages (with added sugar or flavouring) | 28% | 40% | Increased (12%) |
This increase to 40% applies to aerated waters with sugar, caffeinated beverages, and fruit-based carbonated drinks.
This means soft drinks served at restaurants now attract one of the highest possible tax rates on goods, counterbalancing the affordability measures on essential food items.
Final word
The launch of GST 2.0 on September 22, 2025, will reshape the way India eats and spends. It is also safe to say that this update not only focuses on the wallet health of commoners but also on their physical health.
By reducing GST on essentials like milk, paneer, butter, cheese, parotta, chocolates, and even dining services, the government has delivered real savings for households while simplifying compliance for businesses.
Consumers now enjoy lighter grocery bills and lower restaurant costs, while farmers, cooperatives, and food processors benefit from stronger demand and reduced barriers. For restaurants, the simplified structure balances affordability for diners with flexibility through Input Tax Credit (ITC).
Disclaimer: The prices and comparisons presented in this blog are based on assumed and indicative data for illustrative purposes only. Actual product prices may vary depending on brand, region, and market conditions. Readers are advised to verify the latest GST rates and retail prices from official government notifications and authorised retailers before making financial or business decisions.
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