GST Composition Scheme vs Regular for Kerala Restaurants: Real Math Across Dine-In, Swiggy and ITC

If you run a restaurant, tea-shop, biriyani joint or cloud kitchen anywhere in Kerala, you have probably been told one of two things by a well-meaning friend: "just take composition, only 1% GST", or "take regular, you'll save lakhs on rent ITC". Both are wrong more often than they are right. The GST composition scheme restaurant Kerala question is not a one-line answer — it depends on your rent, your Swiggy share, whether you serve alcohol, and a small but vicious clause called Section 9(5) that nobody explains properly. In this guide we sit down with a calculator and three real Kerala-style P&Ls — a Kochi tea-shop at ₹40 lakh, a Trivandrum dine-in at ₹1.2 crore, and a Calicut cloud kitchen riding 70% on Zomato — and we show you the exact rupee difference. No fluff, no copy-paste from CBIC.

The 5% question every Kerala restaurant owner gets wrong

Walk into any chartered accountant's office in Ernakulam or Kozhikode and ask "composition or regular?" — nine out of ten will reply "composition, 5%, no ITC" without asking what kind of restaurant you run. That is the first mistake. Composition for a restaurant is 5% flat on turnover, not 1% (the 1% rate is for traders, the 2% rate is for manufacturers — not for restaurants). Regular GST for a standalone restaurant is also 5%, but without ITC. So at first glance both look the same. They are not. The difference shows up in three places: the returns you file, the ITC you forfeit, and the customers you can serve. Get any of those wrong and a "small saving" turns into a ₹3-4 lakh leak a year.

The second mistake is assuming restaurant GST is still the simple slab it was in 2017. After Notification 11/2017 was amended, after Section 9(5) brought Swiggy and Zomato into the GST collection net from 1 January 2022, and after the March 2025 CBIC FAQ rewrote the rules for "specified premises", the restaurant chapter of GST is now genuinely a decision tree, not a one-liner. This article walks you through that tree with Kerala numbers.

Composition scheme in 30 seconds: rate, returns, and turnover limit

Under Section 10(1)(b) of the CGST Act, 2017, a restaurant whose aggregate turnover in the preceding financial year did not exceed ₹1.5 crore can opt to pay tax under the composition scheme. The rate is a flat 5% of turnover in the state (2.5% CGST + 2.5% SGST). You cannot collect this 5% separately from the customer — it has to come out of your price. You cannot claim any input tax credit on the GST you paid on rent, raw material, gas, packaging, Swiggy commission, or anything else. You do not issue a tax invoice. You issue a Bill of Supply with the words "composition taxable person, not eligible to collect tax on supplies" printed on it.

Compliance is light. You file Form CMP-08 quarterly by the 18th of the month after the quarter (so 18 July, 18 October, 18 January, 18 April) and one annual return in Form GSTR-4 by 30 June of the following financial year. That is five filings a year against the 25+ a regular dealer juggles. Source: CBIC FAQ on Composition Levy.

Three hard restrictions you must internalise:

• No inter-state outward supply. If you cater a wedding in Coimbatore and bill from your Palakkad restaurant, you are out of composition. Inside Kerala only.
• No alcohol. The moment your bar contributes one rupee of turnover, composition is gone.
• No supply through an e-commerce operator required to collect TCS for goods. For restaurant services through Swiggy/Zomato, Section 9(5) shifts the liability anyway, so this is less of an issue — we'll untangle that below.

Regular GST for restaurants: 5% without ITC vs 18% with ITC

Here is where most blogs get lazy. Under Notification 11/2017-Central Tax (Rate) as amended, a standalone restaurant — meaning not located inside a hotel charging more than a certain room tariff — supplies "restaurant service" at 5% without ITC. So if you take regular GST registration but you are a normal Kerala dine-in or a takeaway, you charge the customer 5%, you remit 5%, and you absorb every rupee of GST your suppliers charged you. Source: Notification 11/2017.

The 18%-with-ITC slot is reserved for restaurants in "specified premises". From 1 April 2025 the definition of specified premises was rewritten by CBIC. A restaurant is in specified premises if:

• it is located in a hotel where, in the preceding FY, the unit of accommodation was supplied at a declared tariff of more than ₹7,500 per unit per day, OR
• the supplier has voluntarily filed a declaration at the start of the FY (or before commencing supply, for new registrations) opting into specified-premises treatment.

If you are in either bucket, restaurant service is 18% with ITC. If you are neither, you stay at 5% without ITC, even if your hotel earlier had AC rooms above ₹7,500. The old "AC restaurant = 18%" rule is dead. Reference: CBIC FAQ dated 27 March 2025.

The AC vs non-AC myth: what really decides your rate after 2025

Until 2017, the slab actually did depend on whether you had AC and whether you served alcohol. The slabs were 12% (non-AC, no alcohol) and 18% (AC or alcohol). That entire structure was abolished from 15 November 2017 when restaurants were brought to a flat 5% without ITC. So if your CA is still asking you "do you have AC?" to set your GST rate in 2026, get a new CA. The only modern question is: are you in a specified premises hotel, yes or no? Everything else — AC, non-AC, takeaway, dine-in, terrace, courtyard, kappa-meen-curry counter — is 5% without ITC.

Section 9(5): why Swiggy and Zomato pay GST, not you

From 1 January 2022, Section 9(5) of the CGST Act read with the relevant notification brought "restaurant service supplied through an e-commerce operator" inside Section 9(5). That means Swiggy and Zomato — the e-commerce operators (ECOs) — are deemed the suppliers and are liable to pay GST at 5% on restaurant orders routed through them, except where the restaurant is in specified premises. Reference: CBIC Circular 164/2021.

What this means in practice for your Kochi shawarma stall:

• On Swiggy/Zomato orders, you do NOT charge GST on the food value to the customer. Swiggy/Zomato discharge the 5% directly.
• You still raise your invoice/bill of supply to the platform without GST on the restaurant service component.
• You cannot claim ITC on inputs attributable to those Swiggy/Zomato supplies if you are at 5%-without-ITC — because that supply is exempt in your hands.
• You report ECO supplies in Table 8 of GSTR-3B and Table 14 of GSTR-1 — the "exempt outward supply on which ECO is liable" rows.

And here is the punchline almost no Kerala restaurant owner is told: Swiggy commission (typically 18-30%) is itself a separate supply from Swiggy to you, taxed at 18% GST. On a ₹100 order where Swiggy keeps ₹25 commission, you pay ₹4.50 GST to Swiggy. If you are on composition or 5%-without-ITC, that ₹4.50 is a sunk cost. If you are on 18%-with-ITC (specified premises), you can claim it. Hold this thought — it shows up in the math below.

Worked example 1: Kochi tea-shop at ₹40 lakh turnover

Meet Suresh-chettan. He runs a tea-shop in Vyttila, Kochi. Annual turnover ₹40 lakh, all dine-in and takeaway, no Swiggy, no alcohol, ₹15,000/month rent (landlord unregistered, no GST), gas + milk + sugar suppliers mostly unregistered, packaging spend ~₹40,000/year with 18% GST.

The headline shock: composition costs Suresh-chettan ₹2 lakh a year out of his own margin, because composition dealers cannot show GST separately on a Bill of Supply. Under regular 5%, he can add 5% to the menu price and collect it from customers — net cost zero. But in a tea-shop where customers expect ₹15 for chaaya and ₹25 for parippu vada, can he actually push 5% onto the price? Most cannot. They absorb part of it. So effective real cost under regular might be ₹1.2-1.5 lakh, still less than composition's ₹2 lakh.

Verdict for Suresh-chettan: regular 5% wins on rupees, composition wins on paperwork peace of mind. If he is doing his own filings, composition's 5 returns may be worth the ~₹50-80k difference. If we file for him on our monthly and quarterly GST return filing plan, regular is the rational call.

Worked example 2: Trivandrum dine-in restaurant at ₹1.2 crore

Now meet Anu's Kitchen, Pattom, Trivandrum. Annual turnover ₹1.2 crore. 80% dine-in, 20% Swiggy + Zomato. Rent ₹1.2 lakh/month in a commercial complex with a registered landlord — GST on rent ₹21,600/month = ₹2.59 lakh/year. Packaging, gas (commercial cylinders 5%), cleaning supplies, AMC, marketing — total GST paid on inputs ≈ ₹4 lakh/year. Swiggy/Zomato commission ~₹4.8 lakh/year, 18% GST on commission = ₹86,400.

Anu is past ₹1 crore. She is not in specified premises (her standalone restaurant has nothing to do with a hotel). So 18%-with-ITC is not legally available to her. She also serves Swiggy/Zomato customers, which kills composition: a composition dealer technically can take ECO orders but the operational mess (Section 9(5) deeming, no tax invoice, customer reconciliation) makes it impractical, and she is anyway only ₹30 lakh from breaching ₹1.5 cr.

Verdict: regular 5% without ITC is her only sensible option. She would lose money under composition because she'd absorb GST out of margin instead of charging it. She cannot magically opt into 18%+ITC without being a specified-premises hotel.

Worked example 3: Calicut cloud kitchen riding 70% on Zomato

Hassan runs Biriyani House from a 600 sq ft kitchen in Mavoor Road, Kozhikode. No dine-in. ₹85 lakh turnover. 70% Zomato + Swiggy, 30% direct WhatsApp pickup. Rent ₹55,000/month, registered landlord — ₹9,900 GST/month = ₹1.19 lakh/year. Packaging, raw chicken, basmati, ghee — total inputs of ₹35 lakh, of which roughly ₹6 lakh is from registered suppliers carrying GST (mostly 5%, some 18% — credit ≈ ₹50,000/year). Swiggy/Zomato commission ~₹15 lakh, 18% GST = ₹2.7 lakh.

Note: for restaurants that supply through an ECO, the practical reading after Section 9(5) is that the ECO discharges the 5%. But a composition dealer cannot ride the Section 9(5) benefit cleanly — they have to pay 5% on aggregate turnover regardless. In effect composition double-taxes a cloud kitchen doing 70% on Swiggy/Zomato. The correct answer for Hassan is regular 5% without ITC: he pays 5% only on his 30% direct sales, Zomato takes care of the rest, and his ₹50k ITC loss is irrelevant because regular 5% doesn't allow ITC anyway.

This is exactly the call we walk founders through when we set up FSSAI license for cloud kitchens in Kerala and the matching GST file together. Cloud kitchens almost always lose under composition. See also GST for Amazon and Flipkart sellers in Kerala for the ECO-driven logic in a non-restaurant context.

ITC math: rent, raw material, and Swiggy commission you can or can't claim

This is the single most misquoted area in the entire restaurant GST conversation. Let's draw a hard line.

What you can NEVER claim ITC on (as a 5%-without-ITC or composition restaurant)

• GST on commercial rent paid to your landlord (18%)
• GST on Swiggy/Zomato commission (18%)
• GST on commercial gas cylinders (5%)
• GST on packaging materials (12%/18%)
• GST on accounting software, POS, AMC, marketing (18%)
• GST on raw materials wherever vendor is registered

What you CAN claim if you are at 18% specified-premises

All of the above, fully, against your 18% output liability. This is why the very few Kerala restaurants legitimately at 18% — typically a few in CGH Earth, Taj Malabar, Le Méridien Kochi, Grand Hyatt Bolgatty type properties — actually save tax overall. Their input pool is huge.

The rent ITC trap

One question we hear weekly on WhatsApp: "My landlord charges me ₹2 lakh + 18% GST. Can I switch to 18% restaurant GST to claim the rent ITC?" The answer is no. Unless your restaurant is inside a hotel where rooms cross ₹7,500/day, or you proactively file the specified-premises declaration at the start of the year (which then locks you into 18% on all your supply, not just the ITC-rich ones), you are stuck at 5% without ITC. The voluntary declaration almost never works out — your menu prices have to absorb 13% extra and you usually lose customers. Don't do it casually.

Hidden traps: the ₹1.5 crore breach, alcohol, and inter-state catering

Trap 1: Breaching ₹1.5 crore mid-year

If your aggregate turnover (all GSTINs on the same PAN, plus exempt income, plus exports) crosses ₹1.5 crore at any point in the year, you cease to be a composition dealer from the day after the breach. You must file Form CMP-04 within 7 days, switch to regular, and start raising tax invoices. Restaurants who miss this end up paying 18% on everything from the breach date with penalties — a brutal way to discover compliance.

Trap 2: Bar income

The moment you serve beer, wine or IMFL — even ₹1,000 a month from a small bar attached to your restaurant — you are disqualified from composition. Alcohol is non-GST (state excise), but supplying any non-GST item shuts you out of composition entirely. Most "bar attached" restaurants in Trivandrum and Kochi must run regular GST.

Trap 3: Outside-Kerala catering

One wedding in Coimbatore, billed from your Palakkad GSTIN, is inter-state outward supply. Composition does not allow that. Either reject the order, or bill it through a separate non-composition entity. Many Kerala wedding caterers got hit by this exact rule in 2023-24 audits.

Trap 4: Cash-only does not exempt you

If your annual turnover crosses ₹20 lakh (services threshold) or ₹40 lakh (goods threshold — restaurants are a mixed supply but the practical Kerala threshold is ₹20 lakh from restaurant service), you must register. Cash transactions are still turnover. The "I only take cash" defence does not work — the GST department uses bank statements, electricity bills, and Swiggy data for triangulation.

How to switch schemes mid-year (CMP-02 and the April window)

You cannot freely flip between composition and regular. The rules are:

• To opt INTO composition: file Form CMP-02 on the GST portal before the start of the financial year. So for FY 2026-27, you have to file by 31 March 2026. Once in, you stay in for the full year unless you breach.
• To opt OUT mid-year: file Form CMP-04 within 7 days of becoming ineligible (turnover breach, alcohol sale, inter-state supply). You then file Form ITC-01 within 30 days to claim ITC on stock as on the date of switch — this is real money, do not skip it.
• New registrations can opt in at the time of registration in REG-01 itself.

Read about how late filings stack up in our piece on the GST late filing penalty and how to avoid it. Composition does not exempt you from CMP-08 and GSTR-4 late fees.

Our recommendation framework for Kerala restaurants in 2026

After ~140 restaurant GST set-ups across Kerala in the last two years, here is the decision tree we actually use on WhatsApp consultations:

Note: in 2024 the Kerala Authority for Advance Ruling clarified that even a "sale of food items through a counter" qualifies as restaurant service and attracts the restaurant rate, not the higher goods rate. This protects bakery-style counter operations from being pushed into 18% on packed sweets they prepare and sell. Source: Kerala AAR 2024.

Filing checklist and what we do for you on WhatsApp

Whichever scheme you choose, here is the minimum compliance bundle you need to keep clean:

1. GSTIN displayed at entry and on every bill of supply / tax invoice (see GSTIN explained)
2. FSSAI food license for restaurants and cloud kitchens visible on premises and on Swiggy/Zomato listing
3. Composition: CMP-08 filed quarterly + GSTR-4 by 30 June
4. Regular: GSTR-1 by 11th of next month (or IFF if QRMP), GSTR-3B by 20th/22nd/24th, GSTR-9 annual
5. Section 9(5) ECO sales reported in Table 8 of GSTR-3B and Table 14 of GSTR-1
6. Swiggy/Zomato monthly statements reconciled — they sometimes report wrong
7. If incorporated, also keep MCA filings clean — see Private Limited Company registration in Kerala for the right structure
8. Use GST portal login + state portal at Kerala State GST Department for state-specific notices

If you are starting a new restaurant or cloud kitchen, our GST registration for your restaurant (₹1,499 onwards) includes a 20-minute scheme-selection call where we run your actual numbers — not generic advice. For Ernakulam-based founders we also offer the same bundle as GST registration in Kochi with on-ground document collection.

Why the scheme choice is worth ₹2-5 lakh a year

A 70-cover restaurant in Kerala throwing ₹1 crore turnover where the founder picked composition because "my friend said 5% is the lowest" loses roughly ₹3.5-4.2 lakh a year versus regular 5%. That is real money — a fryer, a tandoor, a junior chef, a marketing budget. The choice deserves 30 minutes and a calculator, not a WhatsApp forward.

Message us on WhatsApp +91 62823 86664 with your last 3 months' Swiggy/Zomato statement and a screenshot of your rent agreement. We will send back a one-page PDF telling you exactly which scheme saves you the most this FY, with the math shown. No hidden govt fees, no upsell, all-inclusive pricing, filed by empanelled CA/CS/Advocate. Reference docs: CBIC FAQ on Composition Levy, Notification 11/2017 Central Tax (Rate), CBIC Circular 164/2021 on Section 9(5) and restaurant services through ECOs, CBIC FAQ on revised GST rules for hotels and restaurants (March 2025).