Restaurants fail at twice the rate of other small businesses - and in almost every case, the cause is financial, not culinary. The food is great, the reviews are good, the restaurant is packed on weekends - but the owner does not know the food cost per dish, the prime cost ratio is above 70%, inventory waste is eating profit, and the GST structure is costing money that could be saved with the right scheme. Restaurant accounting is not generic small business accounting - it has its own rules, ratios, and rhythms.
This guide covers accounting specifically for Indian restaurants, cloud kitchens, cafés, and food businesses - GST rate structure, food costing, inventory control, prime cost management, Zomato/Swiggy accounting, and the monthly compliance calendar. For general bookkeeping fundamentals, see our bookkeeping guide.
GST for Restaurants: The Complete Rate Structure
| Restaurant Type | GST Rate | ITC Allowed? |
|---|---|---|
| Standalone restaurant (AC/non-AC/takeaway) | 5% (2.5% CGST + 2.5% SGST) | No. Cannot claim ITC on any inputs - ingredients, rent, equipment |
| Hotel restaurant (room tariff ≤ Rs 7,500) | 5% (no ITC) | No |
| Hotel restaurant (room tariff > Rs 7,500) | 18% (9% CGST + 9% SGST) | Yes. Full ITC on all inputs |
| Outdoor catering service | 5% (without ITC) or 18% (with ITC) at specified premises | Only at 18% rate |
| Cloud kitchen | 5% (same as restaurant service) | No |
| Composition scheme (turnover < Rs 1.5 Cr) | 5% flat (paid by restaurant, not charged to customer) | No ITC. No inter-state supply allowed |
| Food delivery via Zomato/Swiggy (Section 9(5)) | 5% - paid by platform directly to government | No (restaurant does not collect or pay GST on these orders) |
Key Implication: At 5% GST without ITC, your food, rent, equipment, and packaging costs are 'sunk' - the 18% GST you pay on ingredients (vegetables/processed food attract 5-18%) and 18% on rent/services cannot be reclaimed. This increases your effective cost by 5-10%. Factor this into your menu pricing. For detailed GST return filing across restaurant types, see our restaurant GST return filing services.
Food Cost Percentage: The Number That Determines Profitability
Food Cost Percentage = (Cost of Ingredients ÷ Menu Selling Price) × 100
Target: 28-35% for a healthy restaurant. Fine dining can be 30-38%. QSR (Quick Service Restaurant) should be 25-32%. Cloud kitchen: 28-35% (lower overheads offset slightly higher food cost tolerance).
Worked Example - Paneer Butter Masala:
| Ingredient | Cost per Portion (Rs) |
|---|---|
| Paneer (100g) | 35 |
| Tomatoes, onions, spices, butter, cream | 25 |
| Naan/roti (2 pcs) | 10 |
| Packaging (if delivery) | 8 |
| Total Ingredient Cost | 78 |
| Menu Price (ex-GST) | 250 |
| Food Cost % | 31.2% ✓ Within target |
If food cost exceeds 35%, investigate: are ingredient prices rising (renegotiate suppliers or adjust portions), is there kitchen waste (track wastage daily), are portion sizes inconsistent (standardise recipes with exact measurements), or does the menu price need revision?
Prime Cost: The Master Metric for Restaurant Profitability
Prime Cost = COGS (Food + Beverage) + Total Labour Cost (salaries, wages, PF, ESI, bonus, casual labour)
Target: 55-65% of total revenue. Above 65% means the restaurant is operationally unprofitable - every rupee earned is consumed by food and labour before rent, utilities, and other overheads.
Example: Monthly revenue Rs 12,00,000. COGS Rs 3,60,000 (30%). Labour Rs 3,00,000 (25%). Prime Cost = Rs 6,60,000 (55%). Healthy - leaving Rs 5,40,000 (45%) for rent, utilities, marketing, loan EMI, depreciation, and profit.
If prime cost exceeds 65%: Review staffing (are shifts optimised?), negotiate ingredient costs, reduce waste, increase menu prices, or improve table turnover. A 2% reduction in prime cost on Rs 12 lakh revenue = Rs 24,000/month = Rs 2,88,000/year in additional profit. For understanding your P&L in detail, see our P&L reading guide.
Inventory Management: Controlling the Biggest Variable Cost
Restaurant inventory is perishable - unlike a trading business, unsold stock expires and becomes waste. This makes inventory management the single highest-impact cost control lever.
COGS Calculation for Restaurants
COGS = Opening Inventory + Purchases During the Period − Closing Inventory
Example: Opening inventory (1 March): Rs 80,000. Purchases during March: Rs 3,20,000. Closing inventory (31 March): Rs 60,000. COGS = 80,000 + 3,20,000 − 60,000 = Rs 3,40,000.
Inventory Counting Frequency
- Daily: Cash bar (alcohol, premium ingredients). Count closing stock daily to detect pilferage and over-pouring.
- Weekly: High-value perishables - proteins (chicken, fish, paneer), dairy (cream, butter, cheese), vegetables. Calculate weekly COGS to catch cost spikes immediately.
- Monthly: Dry goods (spices, grains, pulses, oil), packaging, cleaning supplies. Monthly COGS calculation feeds into the P&L.
Reducing Waste
- Standardised recipes: Exact measurements for every dish. No 'andaaza' (estimation). A recipe card for every menu item - ingredient, quantity, method.
- FIFO (First In, First Out): Use older stock first. Label everything with date of receipt. Expired stock = wasted money.
- Prep planning: Prepare only what you expect to sell. Over-prepping on a slow Tuesday wastes ingredients. Track daily sales patterns.
- Waste log: Record every item wasted - burnt, expired, dropped, over-prepared. Weekly waste review identifies patterns and training needs.
Accounting for Zomato and Swiggy Orders (Section 9(5))
Under Section 9(5) of the CGST Act, food delivery platforms (Zomato, Swiggy) are deemed suppliers for delivery orders. The platform collects and pays 5% GST directly to the government - the restaurant does not collect GST on these orders.
What this means for your books: Revenue from Zomato/Swiggy orders = the food value (ex-GST). You do not add GST to these invoices - the platform handles it. In GSTR-3B, report these orders in Table 3.1.1(ii) - 'Outward supplies where tax is payable by e-commerce operator'. These orders appear in your GSTR-1 at 0% tax rate (because the platform pays the tax).
Commission accounting: Zomato/Swiggy deduct 15-30% commission (varies by plan and city) from each order before settlement. This commission carries 18% GST - but since you are at 5% without ITC, you cannot claim this 18% GST. Record commission as 'Platform Commission Expense'. The settlement amount = order value − commission − GST on commission − other deductions.
Reconciliation: Download weekly/fortnightly settlement reports from Zomato/Swiggy dashboards. Match gross order value with your POS. Match settlement amount with bank credit. Investigate any mismatch. For GST filing support across delivery platforms, see our restaurant GST services.
Restaurant Chart of Accounts: What to Track
- Revenue: Dine-In Sales, Takeaway Sales, Zomato Sales, Swiggy Sales, Catering Revenue, Other Income (scrap sale, interest)
- COGS: Food Purchases (vegetables, proteins, dairy, grains, spices), Beverage Purchases, Packaging Materials
- Labour: Kitchen Staff Salaries, Service Staff Salaries, Casual Labour, PF/ESI Employer Contribution, Bonus
- Occupancy: Rent, Property Tax, Electricity, Water, Gas/LPG, Insurance, Maintenance
- Operating: Platform Commission (Zomato/Swiggy), Advertising/Marketing, POS Software, Linen/Laundry, Crockery/Cutlery Replacement, FSSAI/Licence Fees, CA/Professional Fees
- Assets: Kitchen Equipment, Furniture, POS Hardware, Inventory (closing), GST Input (if 18% scheme)
- Liabilities: GST Payable, TDS Payable, Salary Payable, Vendor Payable, Loans/CC
Monthly Compliance Calendar for Restaurants
| Date | Task | Details |
|---|---|---|
| 1st-5th | Inventory Count + COGS Calculation | Count closing stock. Calculate monthly COGS. Compare with target food cost %. |
| 1st-5th | Zomato/Swiggy Settlement Reconciliation | Match settlement reports with POS and bank deposits. |
| 7th | TDS Deposit | Deposit TDS on rent (194I), professional fees (194J), contractors (194C). |
| 11th | File GSTR-1 | Report all sales. Zomato/Swiggy orders in supply table at 0% (Section 9(5)). |
| 15th | PF/ESI Deposit | Employee PF and ESI contribution for previous month. |
| 20th | File GSTR-3B + Pay GST | Pay net GST liability. Section 9(5) orders in Table 3.1.1(ii). |
| Month-End | P&L + Prime Cost Review | Review monthly P&L. Calculate food cost %, labour cost %, prime cost ratio. |
Composition scheme restaurants: File CMP-08 quarterly (not monthly) + GSTR-4 annually. Simpler but no ITC. For GST return filing across both schemes, we handle the complete process.
Key Takeaways
Restaurant GST is 5% without ITC for most establishments (standalone restaurants, cloud kitchens, delivery). This means 18% GST paid on ingredients, rent, and services cannot be reclaimed - increasing your effective cost by 5-10%. Only hotel restaurants with room tariff above Rs 7,500 can charge 18% and claim ITC.
Food cost percentage (28-35% target) and prime cost ratio (55-65% target) are the two most important metrics for restaurant profitability. Track them monthly - a 2% improvement in prime cost on Rs 12 lakh monthly revenue = Rs 2.88 lakh/year in additional profit.
Inventory management is the highest-impact cost control lever - weekly counting for perishables, standardised recipe cards for every dish, FIFO rotation, and a daily waste log. Restaurants that do not count inventory weekly are flying blind on their biggest variable cost.
Zomato/Swiggy orders under Section 9(5) require different GST treatment - the platform pays 5% GST directly. You report these orders at 0% in GSTR-1 and in Table 3.1.1(ii) of GSTR-3B. Commission paid to platforms (15-30%) is a non-ITC-claimable expense that must be accounted for in your menu pricing.
Restaurant accounting requires industry-specific chart of accounts (revenue by channel, COGS by category, labour by role, platform commissions), daily/weekly inventory tracking, and monthly prime cost analysis - generic small business bookkeeping misses the metrics that make or break a food business.
Need Specialised Restaurant Accounting?
Restaurant accounting requires industry-specific expertise - GST rate classification (5% vs 18%), Section 9(5) platform accounting, food cost tracking, inventory management, and prime cost analysis. A CA who understands restaurants will save you more in cost control insights than they charge in fees.
Explore our restaurant GST and accounting services - GST filing for all restaurant types, platform settlement reconciliation, monthly P&L with food cost and prime cost analysis, and complete compliance management. 300+ restaurant clients served.
For queries, reach out at +91 945 945 6700 or WhatsApp us directly.
