Restaurant accounting looks simple from outside: food goes out, money comes in. In practice it carries a GST structure unlike almost any other business, stock that spoils within days, and revenue arriving through four or five channels that each settle differently.
The GST rate structure is the first thing to get right
Restaurant services are taxed differently depending on where the restaurant sits, and the rate determines whether input tax credit is available at all.
| Standalone restaurant | 5 percent | Not available | Restaurant inside a specified-tariff hotel | 18 percent | Available | Outdoor catering, standalone | 5 percent | Not available | Catering at a specified-tariff hotel | 18 percent | Available | Goods sold as packaged items | Item rate | Available |
The 5 percent rate without input tax credit is the single biggest difference from ordinary trading. Every rupee of GST on rent, equipment, packaging and ingredients becomes a cost rather than a recoverable credit, which changes how the menu has to be priced.
Why blocked credit changes the cost base
A trading business prices on cost excluding GST, because the tax is recovered. A standalone restaurant cannot, so tax paid on inputs has to be built into food cost.
- Record purchases at the full invoice value, including GST.
- Do not post the GST element to an input credit ledger.
- Use the gross cost when computing food cost percentage.
- Review menu pricing when supplier GST rates change, not just when prices do.
Booking GST on ingredients as a recoverable credit is a common error, and it understates food cost on every dish while creating a credit balance that will have to be reversed.
Revenue arrives through channels that settle differently
A single day's sales can come through five routes, each with its own timing, deduction and reconciliation requirement.
| Cash at counter | Immediate | Daily cash-up against the till | Card and UPI | Next day, net of fees | Gateway charges and chargebacks | Aggregator delivery | Weekly, net of commission | Commission, TCS, packaging charges | Table booking platforms | Variable | Discount borne by you or the platform | Corporate or event billing | On credit | Receivables and TDS |
Aggregator settlements are the hardest to reconcile because the amount banked is never the sales value. The same problem appears in marketplace selling, and the approach in payment gateway settlement reconciliation transfers directly.
E-commerce operators and the TCS question
Food delivery aggregators are notified e-commerce operators. For restaurant service supplied through them, the tax liability generally sits with the operator rather than the restaurant, which changes what you report rather than what you earn.
Netting aggregator deductions against revenue is the most frequent bookkeeping error in this sector. It understates turnover, which can matter for registration and audit thresholds, and hides the true cost of the channel.
Stock that spoils needs different controls
Restaurant inventory behaves unlike retail stock. It is consumed rather than resold, it changes form during preparation, and a meaningful share is lost to wastage every day.
- Maintain recipes with standard quantities per dish.
- Compute theoretical consumption from dishes sold.
- Compare it against actual stock issued from the store.
- Investigate the variance, which is wastage, over-portioning or pilferage.
- Count high-value items daily rather than monthly.
A theoretical-versus-actual comparison is the single most useful control in a kitchen. Without it, the food cost percentage is known only after the month has closed and nothing can be done about it.
Daily numbers that matter more than monthly ones
Restaurants operate on thin margins and fast cycles. A monthly report tells you what went wrong four weeks after it started, which is usually too late to correct.
Month end for a restaurant
- Reconcile every settlement channel against the bank.
- Count closing stock, including the kitchen store and bar.
- Compute actual food cost and compare to the theoretical figure.
- Accrue supplier bills received but not yet paid.
- Reconcile aggregator statements to recorded sales.
- Review menu items where cost has drifted since the last review.
Frequently asked questions
Can a standalone restaurant claim input tax credit on rent?
Not while supplying restaurant service at the 5 percent rate. The GST on rent, equipment and ingredients becomes part of the cost base, which is why menu pricing has to be built on gross rather than net input cost.
How should aggregator commission be recorded?
As an expense, with gross sales recorded at the full menu value. Recording only the amount received from the aggregator understates turnover and hides what the channel actually costs you.
Is the composition scheme available to restaurants?
A composition option exists for eligible restaurant businesses below the prescribed turnover, at a concessional rate without input tax credit and without the ability to collect tax from customers. Whether it suits depends on turnover and customer mix; take advice before opting in.
How often should stock be counted?
High-value and fast-moving items daily, the full store weekly, and a complete count at month end. Monthly-only counting in a business with daily spoilage produces a variance nobody can explain.
