GST Composition Scheme for Restaurants

Two Ways to Pay GST

When a restaurant registers for GST, it chooses between two schemes:

• •The regular scheme — the restaurant charges GST on each bill, issues tax invoices and files monthly or quarterly returns.
• •The composition scheme — the restaurant pays tax at a fixed rate on its turnover, issues a bill of supply without GST and files fewer returns.

Both are legal. The right choice depends on your size, your customers and how fast you expect to grow. This guide explains the composition scheme in plain terms. GST rules and limits change, so confirm the current position with your CA before you decide.

How the Composition Scheme Works for Restaurants

Under composition, a restaurant pays GST as a percentage of its total turnover, split equally between CGST and SGST. The rate for restaurant services has commonly been 5% (2.5% + 2.5%).

The key difference from the regular scheme is who pays:

• •In the regular scheme, the customer pays GST on top of the menu price, and the restaurant passes it on to the government.
• •In the composition scheme, the customer is not charged GST. The restaurant pays the tax out of its own sales.

Eligibility

Broadly, a restaurant can opt for composition when:

• •Its aggregate turnover in the previous financial year was within the composition limit (₹1.5 crore in most states, lower in special category states)
• •It does not make inter-state supplies
• •All registrations under the same PAN opt for the same scheme

The option is usually chosen at the start of the financial year, through a filing on the GST portal. Check with your CA whether selling through food aggregators affects your eligibility, as the rules for e-commerce supplies have changed over time.

Bill of Supply, Not Tax Invoice

A composition restaurant must issue a bill of supply. It should:

• •Say "Composition taxable person, not eligible to collect tax on supplies" (or the current wording)
• •Show the GSTIN
• •Not show CGST or SGST lines
• •Not add any GST to the customer's total

The words "composition taxable person" should also be displayed on a board at the premises.

Returns Under Composition

Instead of the monthly GSTR-1 and GSTR-3B, a composition taxpayer generally files:

• •CMP-08 — a quarterly statement to pay tax
• •GSTR-4 — an annual return

This is the main reason small restaurants choose composition: fewer filings and simpler books.

Composition vs Regular: A Comparison

• •GST on customer bill: regular — yes; composition — no
• •Document issued: regular — tax invoice; composition — bill of supply
• •Input tax credit: regular — depends on rate and premises; composition — not available
• •Returns: regular — GSTR-1 and GSTR-3B; composition — CMP-08 and GSTR-4
• •B2B customers can claim credit: regular — yes; composition — no
• •Turnover limit: regular — none; composition — yes

When Composition Makes Sense

• •Most customers are walk-in families and individuals
• •Turnover is comfortably below the limit
• •You do not need to issue tax invoices to companies
• •You want fewer filings and simpler accounting

When Regular Is Usually Better

• •Corporate and B2B customers ask for tax invoices
• •You expect to cross the turnover limit soon
• •You operate multiple outlets or sell across states
• •Menu prices are already set with GST added on top

The Pricing Effect

Under composition, GST comes out of your margin. If your menu prices stay the same, you earn less per bill than a regular restaurant charging GST on top. Many composition restaurants build the tax into menu prices instead. Run the numbers on your own menu before switching.

Key Takeaways

• •Composition lets small restaurants pay GST at a fixed rate on turnover with fewer filings.
• •A composition restaurant cannot charge GST to customers and must issue a bill of supply.
• •Input tax credit is not available under composition.
• •It suits small, consumer-facing restaurants; B2B-heavy or fast-growing ones usually prefer regular.
• •Confirm current limits, rates and forms with your CA before you choose.

How RasoeeCloud Helps

RasoeeCloud is built around the regular GST scheme: it calculates CGST and SGST on every bill, prints them on tax invoices, and gives your accountant a GST report for filing. If you are deciding between schemes, the sales and tax reports help your CA see your real turnover and the GST you collect today.

Related reading: GST Billing for Restaurants: Complete Guide and Restaurant Licenses in India: Full Checklist.

Start your 7-day free trial at rasoeecloud.com and keep your restaurant's GST numbers ready for your CA.