GST Composition Scheme for Restaurants (2026) — The Complete Guide

What is the GST composition scheme for restaurants?

Under Section 10 of the CGST Act, small taxpayers can opt out of the regular monthly GST filing machinery and instead pay a flat rate on total turnover at simpler quarterly intervals. For restaurants (defined as suppliers of food and non-alcoholic beverages under HSN 9963), the composition rate is 5% of turnover — 2.5% CGST + 2.5% SGST — paid out of the restaurant's own pocket, without collecting anything from customers on the bill.

Under the regular scheme, a restaurant charges 5% GST to the customer on the bill, collects that amount, and remits it to the government. Under composition, the restaurant charges the customer the sticker price only, and pays 5% from that sticker price to the government. The rates look identical; the tax burden is not.

Eligibility — the ₹1.5 crore threshold and 4 disqualifiers

A restaurant qualifies for composition if aggregate turnover in the preceding financial year did not exceed ₹1.5 crore (₹75 lakh for special-category states — Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Uttarakhand).

Two nuances that trip founders up:

• "Aggregate turnover" is PAN-level, not GSTIN-level. If you have two restaurants, a catering side-business, and an online food-tech venture under the same PAN, all of that revenue adds up. Cross ₹1.5 crore total and every entity under that PAN becomes ineligible.
• Aggregate turnover includes exempt supplies and export turnover, not just taxable supplies. A restaurant with ₹1.2 crore taxable revenue and ₹35 lakh of exempt sweet-shop sales crosses the threshold.

Even if the turnover fits, four disqualifiers automatically bar you from composition:

1. You serve alcohol. Any supply of alcoholic liquor for human consumption disqualifies the entire business. This is why almost no full-service bar or dine-in-with-beer restaurant can be under composition.
2. You make inter-state outward supplies. Composition is state-restricted. If you supply food to customers in a state where you aren't registered (delivery to a neighbouring state, corporate catering to a client in Maharashtra when you're registered in Gujarat), you fall out.
3. You supply through an e-commerce operator required to collect TCS under Section 52. Since 1 January 2022, restaurant supplies through Swiggy/Zomato are covered under Section 9(5), where the aggregator pays 5% GST directly to government under a separate mechanism. In practice most CAs advise that composition-scheme restaurants can still list on Swiggy/Zomato because those aggregators discharge tax on the restaurant's behalf under 9(5), not 52. But this is a grey area — get your CA's written opinion before assuming.
4. You are a casual taxable person or non-resident taxable person. Applies to pop-up and event-based food businesses.

What you gain by opting in

The composition scheme was designed to lower the compliance burden for small businesses. In practice, restaurants that qualify and stay under the threshold get four real benefits:

1. Lower effective tax rate

You pay 5% on turnover, but you don't collect 5% from customers. So your total tax outflow is roughly the same rupee amount as a regular 5% restaurant — except the customer paid the regular restaurant's tax, and you're paying yours out of margin. The net is: you keep 95% of every ₹100 of sales, versus 100% for a regular restaurant that passed the tax to the customer.

So how is this a benefit? It's a benefit only when your competition also runs composition (typical for small standalone eateries in a market where nobody charges GST on the bill). If you'd have to price 5% higher to add regular GST and lose customers to the composition-scheme competitor next door, staying at the sticker price and eating the 5% is worth it.

2. Simpler filings

Regular dealers file GSTR-1 (monthly), GSTR-3B (monthly), and GSTR-9 (annually) — that's 25 filings a year plus reconciliations. Composition dealers file CMP-08 (quarterly, 4 filings) plus GSTR-4 (annual, 1 filing) — a total of 5 filings a year. For a single-owner restaurant, this cuts the CA's monthly retainer by 40-60%.

3. No invoice-level compliance

Composition dealers issue "bill of supply" documents that don't have to match aggregator or supplier invoices at line-item level. You avoid the input tax credit matching nightmare that regular dealers deal with every month.

4. Predictable cash outflow

Quarterly CMP-08 = one tax payment per quarter, computed on total turnover. Straightforward. No estimating ITC, no reversing wrong claims, no notices about mismatches.

What you lose by opting in

Three real costs, in order of impact:

1. Zero input tax credit

This is the big one. A composition dealer cannot claim ITC on rent, electricity, kitchen equipment, imported ingredients, cleaning supplies, or software subscriptions. For a restaurant paying ₹80,000/month rent (18% GST = ₹14,400/month ITC forgone) + ₹35,000/month electricity + ₹15,000/month software + monthly equipment amortisation, you're leaving ₹1.8-3.5 lakh of annual ITC on the table.

Regular 5% restaurants also don't get ITC (the 5% rate itself is a "no ITC" rate under Notification 46/2017). So this ITC point is only relevant if you'd otherwise be a regular 18% restaurant (which applies only to hotels charging ₹7,500+/room-night).

2. Cannot collect GST from customers

The bill cannot show a GST line. If you inadvertently print one and a GST officer sees it, penalty equal to the collected amount plus retroactive removal from composition. This forces every composition dealer to configure their POS to never print a GST line — a hard constraint that some software can't handle.

3. Cannot make inter-state outward supplies

If you cater a wedding in the state next door, or you deliver directly to a customer across the state border, you technically fall out of composition. In practice this means composition-scheme restaurants stay hyper-local.

4. Cannot serve alcohol

Automatic disqualifier. Any bar, brewpub, or dine-in-with-beer venue is out.

How to opt in — the GST portal walkthrough

The exact click-path on gst.gov.in in 2026:

Path A: fresh GST registration as composition

1. Log in to gst.gov.in and navigate to Services > Registration > New Registration to launch Form GST REG-01.
2. Fill Part A (PAN, mobile, email) and Part B (business details).
3. Under "Composition" in Part B, tick "Opt for Composition Levy".
4. Select your category — for a restaurant, choose "Manufacturers, other than manufacturers of such goods as may be notified by the Government" and specifically the sub-category "Suppliers of food or any other article for human consumption (excluding alcoholic liquor)".
5. Submit. The GSTIN issued will carry the composition flag.

Path B: switching from regular to composition

1. Log in and navigate to Services > Registration > Application to Opt for Composition Levy. This launches Form CMP-02.
2. Fill the declaration of eligibility (turnover under ₹1.5 crore in preceding FY, no inter-state supplies, no alcohol).
3. Submit CMP-02 with DSC or EVC. Must be filed before the start of the financial year for the option to take effect from 1st April.
4. Within 90 days of the switch date, file Form CMP-03 declaring the stock of inputs (raw materials, semi-finished goods, finished goods) held on the transition date, along with the invoice references.
5. Within 60 days of the switch date, file Form ITC-03 to reverse any input tax credit you had accumulated as a regular dealer on the transition stock and capital goods.

Returns — CMP-08 quarterly and GSTR-4 annual

CMP-08 asks four numbers: outward supply turnover, inward supply liable to reverse charge, tax payable, and interest (if any). No invoice-level detail. GSTR-4 rolls up the four quarters into an annual view with a purchases-summary section (grouped by supplier, not by invoice).

Compare to a regular dealer's obligations: GSTR-1 monthly with every outward invoice line-itemised, GSTR-3B monthly for tax payment, and GSTR-9 annually. Composition is genuinely 5× less work.

The bill format — Rule 5(1)(f) footer requirement

A composition dealer's bill is called a bill of supply, not a tax invoice. The two documents have different mandatory contents.

What must appear on a composition dealer's bill of supply

1. The words "composition taxable person, not eligible to collect tax on supplies" at the top of the bill — a hard requirement from Rule 5(1)(f) of the CGST Rules. Missing this footer is grounds for penalty.
2. Business name, address, and GSTIN.
3. Bill number and date of issue.
4. Description of goods or services supplied.
5. Total value of the supply.

What must NOT appear

• Any GST rate percentage (no "5% CGST", no "5% SGST", no "IGST").
• Any GST amount line.
• The phrase "inclusive of GST" — even that hint could be construed as tax collection.
• The words "tax invoice".

When composition is a mistake

Four scenarios where you should not opt for composition, even if you're eligible:

1. High input tax credit potential

If your monthly rent + electricity + kitchen supplies + software attract meaningful GST (say ₹15,000-40,000/month in ITC on inputs), staying regular lets you offset that ITC. A composition dealer forfeits every rupee of it. Do the math on annual ITC available before opting in.

2. Multi-state operations

Composition is state-specific. If you're planning to open a second outlet across a state border, or run cloud kitchens that deliver into a neighbouring state, composition kills those plans. Regular GST works cleanly across states with IGST on inter-state supplies.

3. Premium positioning

If you're a mid-market or premium restaurant where guests expect a formal tax invoice with itemised GST, a composition "bill of supply" looks small-scale. Corporate customers who want to claim ITC on their team lunches will refuse — they can't claim ITC on a bill of supply.

4. Alcohol on the menu (already or planned)

The moment you add beer, wine, or spirits, you're out of composition. Any restaurant planning to add alcohol within 12-24 months should just start regular.

Real math — 5% composition vs 5% regular on a ₹50L restaurant

Consider two identical single-outlet restaurants doing ₹50 lakh annual turnover in Bengaluru. One opted for composition, one opted for regular 5%. Here's the year-end P&L difference:

The regular dealer wins by ₹2-2.4 lakh annually in this scenario — because the regular dealer collected the tax from the customer while the composition dealer paid it from margin. The extra CA/compliance cost of ₹24-36K doesn't come close to offsetting the ₹2.5L margin gap.

Now change one variable: assume the market you operate in is dominated by small unregistered eateries where no restaurant charges visible GST. If the regular dealer tries to add 5% to the sticker price, customers walk to the composition-dealer competitor next door. The regular dealer now has to eat the 5% themselves to stay price-competitive — turning the maths around and making composition marginally better because the compliance savings pull ahead.

Your billing software must support composition correctly

Most restaurant POS packages sold in India in 2026 support composition mode, but the quality of that support varies. Before you commit:

1. Ask the vendor for a screenshot of a composition-scheme bill. Verify: no GST line item, "composition taxable person, not eligible to collect tax on supplies" printed at the top.
2. Verify the CMP-08 export — the software should give you a one-click quarterly turnover report matching the GST portal's CMP-08 fields.
3. Verify handling of aggregator (Swiggy/Zomato) revenue — under Section 9(5) the aggregator pays 5% on your behalf, and your composition CMP-08 turnover should record this without double-counting.
4. Verify handling of reverse charge inward supplies — if you buy from an unregistered dealer, RCM applies at 5% and you pay it in cash even under composition. Software should flag this.

Both of our products handle this. The Online eMenu Desktop POS (₹4,999/year) supports composition mode with the correct footer text baked in and a one-click CMP-08 turnover report. The Ordering Suite (₹199/month) automatically formats aggregator and WhatsApp orders into composition-compliant bills of supply. Set up during onboarding by ticking one checkbox in the settings — no code, no accountant call.

What we'd do if we were you

The 3-question decision flow:

1. Do you serve alcohol, plan to serve alcohol within 24 months, or supply outside your home state? If yes → stay regular. Composition is not an option.
2. Do your inputs (rent + electricity + supplies) attract more than ₹15,000/month of GST? If yes and you're a hotel-attached restaurant on 18% GST → stay regular; you can claim ITC. If no (i.e. you're a standard 5% restaurant anyway) → move to question 3.
3. Can you print sticker prices that pass 5% GST to the customer without losing them? If yes → regular. If no (competitive local market with unregistered competitors setting the price expectation) → composition, and enjoy the 5× lower compliance load.

Frequently Asked Questions

Who is eligible for the GST composition scheme as a restaurant?

Any restaurant with aggregate PAN-level turnover under ₹1.5 crore in the preceding financial year (₹75 lakh in special-category states), not serving alcohol, not making inter-state supplies, and not falling into the casual-or-non-resident taxable-person categories.

When should I opt in?

At initial registration by ticking composition in Form GST REG-01, or later by filing Form CMP-02 before 1st April to take effect for the new financial year. Post-1st-April switches take effect from the following year.

What's the penalty for wrongly staying under composition after crossing ₹1.5 crore?

Retroactive demand of full regular GST at 5% on turnover above the threshold, plus 18% p.a. interest, plus a penalty equal to the tax underpaid. File CMP-04 within 7 days of crossing the threshold to avoid this.

Can I switch back from composition to regular?

Yes. File Form CMP-04 to withdraw. On switching to regular, file Form ITC-01 within 30 days to claim ITC on stock of inputs held on the transition date.

How do I bill customers under composition?

Issue a "bill of supply" (not a "tax invoice") with the mandatory footer "composition taxable person, not eligible to collect tax on supplies" at the top. No GST rate line, no GST amount line, no "inclusive of GST" phrasing.

What returns does a composition-scheme restaurant file?

CMP-08 quarterly (due 18th of month after quarter end), plus GSTR-4 annually (due 30th April of following FY). Five filings a year total.

Does composition apply to Swiggy/Zomato revenue?

Since 1 January 2022, Swiggy and Zomato are the tax collectors on restaurant supplies via aggregators under Section 9(5). Most CAs interpret this as compatible with composition (the aggregator pays 5% under 9(5) separately from your composition 5% on non-aggregator turnover). Ambiguity exists — get your CA's written opinion.

Can I claim ITC on kitchen equipment under composition?

No. All input tax credit is forfeited under composition. Buy your capex before switching in, or stay regular if capex is meaningful.