Looking for expert help with income tax for restaurant owners India, restaurant income tax filing, cafe owner income tax India, restaurant ITR filing AY 2026-27, dhaba income tax India? The team at Tax Garden, based in Kondapur, Hyderabad, helps Indian SMEs stay compliant. End-to-end filings, notices, and deadline tracking, all in one place.
Who is this guide for? If you own a restaurant, cafe, dhaba, cloud kitchen, sweetshop, bakery, catering service, or food truck in India, this guide covers your complete income tax obligations for AY 2026-27 (FY 2025-26): income classification, Section 44AD presumptive taxation, business code 09002, Swiggy and Zomato TDS under Section 194-O, deductible business expenses, equipment depreciation, GST at 5% without ITC, and ITR filing.
India has over 75 lakh restaurants and food establishments, ranging from single-table dhabas to multi-outlet restaurant chains. Despite this scale, most restaurant owners file taxes without understanding rules specific to their industry: the interplay between GST collected on bills and income tax on profits, TDS deducted by food aggregator platforms, food wastage write-offs, and the Section 44AD presumptive scheme that can simplify everything if your turnover stays within limits.
This guide covers every tax obligation a restaurant or cafe owner faces. If you run a related business, see also our guides for salon owners and beauticians, event managers and wedding planners, and coaching center owners.
How Restaurant Owners Earn Income
Restaurant income comes from multiple streams, often within the same establishment:
Tax Rate Chart
Common Revenue Streams for Restaurant Businesses
Typical ranges; actual revenue varies by location, format, and cuisine
Dine-in Food Sales
Core revenue; includes service charge collections
Online Delivery (Swiggy, Zomato)
Growing fast; 15% to 30% commission deducted by platform
Takeaway and Counter Sales
Lower cost-to-serve; often cash-heavy
Catering and Event Orders
Higher ticket; seasonal peaks during weddings and festivals
Alcohol Sales (where applicable)
State excise and VAT apply; not under GST
Packaged Food and Retail Sales
Branded items; separate HSN-based GST rates
Source: Industry estimates based on NRAI and Tax Garden client data (FY 2025-26)
A mid-size restaurant with 100 to 150 covers per day at an average ticket of Rs 350 earns roughly Rs 35,000 to Rs 52,500 daily, translating to Rs 1.05 crore to Rs 1.6 crore annually. A small dhaba or cafe may earn Rs 10 lakh to Rs 30 lakh, while cloud kitchens on Swiggy and Zomato typically range from Rs 20 lakh to Rs 1.5 crore depending on the number of brands operated.
Income Classification: Business Income
Restaurant and food service income is classified as Profits and Gains of Business or Profession under the business head (Section 28 of the Income Tax Act, 1961). Running a restaurant is a business activity. It is not a "specified profession" under Section 44AA (Section 62 under ITA 2025).
You use Section 44AD (Section 58, ITA 2025), not Section 44ADA.
The "chef as professional" misconception
Some restaurant owners who are trained chefs attempt to classify their income as professional income under Section 44ADA to declare 50% deemed profit instead of 6% or 8%. This is incorrect. A chef running a restaurant is operating a business, not practicing a profession listed under Section 44AA. Culinary arts do not appear in the specified professions list (legal, medical, engineering, architectural, accountancy, technical consultancy, interior decoration, authorised representative, company secretary, information technology, and film artist). Misclassification triggers scrutiny and reassessment.
Business code for restaurants
Tax Rate Chart
Income Tax Business Codes for Food Businesses
Select the code matching your primary activity in ITR-3 or ITR-4
09002: Restaurants, Bars, and Canteens
Standalone restaurants, cafes, dhabas, cloud kitchens, QSR chains
09001: Hotels with Accommodation
Hotels, resorts, guest houses providing food with stay
09003: Food Supply in Transport
Railway catering, airline meals, ship food services
09004: Other Hotel/Restaurant Activities
Event catering, tiffin services, mess/canteen operators
Source: Income Tax Department business code list for AY 2026-27
Enter business code 09002 in your ITR form. Using an incorrect code is one of the most common triggers for a defective-return notice from the CPC.
Section 44AD Presumptive Taxation for Restaurants
If your restaurant's gross receipts do not exceed Rs 2 crore (or Rs 3 crore if cash receipts are 5% or less of total turnover), you can use Section 44AD to declare income at a flat percentage of turnover without maintaining detailed books of accounts.
Tax Rate Chart
Section 44AD Deemed Profit Rates for Restaurants
Declare income at these minimum percentages of gross receipts
Digital Receipts (UPI, cards, bank transfer)
Swiggy/Zomato settlements, POS card payments, UPI collections
Cash Receipts (counter cash, walk-ins)
Cash sales at register; higher rate reflects lower traceability
Source: Section 44AD / Section 58, ITA 2025
Practical example
A cafe with Rs 80 lakh annual turnover: Rs 60 lakh digital (UPI, Swiggy/Zomato settlements, card payments) and Rs 20 lakh cash.
- Digital deemed profit: Rs 60,00,000 x 6% = Rs 3,60,000
- Cash deemed profit: Rs 20,00,000 x 8% = Rs 1,60,000
- Total deemed business income: Rs 5,20,000
Tax on Rs 5,20,000 under the new regime (after Rs 75,000 standard deduction): Rs 4,45,000 taxable income. Tax is nil (below Rs 4 lakh basic exemption + Rs 60,000 rebate under Section 87A).
When Section 44AD helps restaurants
Most restaurants operate on net margins of 8% to 15% for well-run establishments and 15% to 25% for small dhabas and QSR outlets. If your actual net profit exceeds the 6% or 8% deemed rate, Section 44AD lets you declare the lower deemed profit legally. No books of accounts, no audit requirement, and significantly less compliance burden.
When to opt out
If your restaurant runs at a loss (new establishment, heavy renovation, expansion phase) or your actual profit is less than 6% or 8% of turnover, you should maintain full books and file under the regular scheme. Declaring profit below the Section 44AD deemed rate triggers mandatory tax audit under Section 44AB.
Five-year lock-in
If you use Section 44AD and then opt out, you cannot return to the presumptive scheme for the next five assessment years (Section 58(7), ITA 2025). Plan carefully before switching.
Swiggy, Zomato, and Food Aggregator Tax Implications
If you sell through online food delivery platforms, three tax deductions apply to your settlements:
1. TDS under Section 194-O (0.1%)
Swiggy and Zomato deduct TDS at 0.1% on the gross amount of sales facilitated through their platform under Section 194-O (Section 393, ITA 2025).
- Rate: 0.1% of gross sales (reduced from 1% effective 1 October 2024)
- Threshold: Rs 5 lakh per financial year for individual and HUF sellers who have furnished PAN
- Without PAN: 5% TDS (Section 206AA)
- This TDS appears in your Form 26AS and AIS; claim credit when filing ITR
2. GST under Section 9(5) (5%)
Since 1 January 2022, food delivery platforms collect and deposit 5% GST on restaurant orders under Section 9(5) of the CGST Act. The platform pays GST to the government on your behalf. You do not collect GST on aggregator orders separately.
Key compliance point: GST on delivery orders is the platform's liability. But GST on dine-in and direct takeaway orders is your liability. Reconcile monthly.
3. Platform commission (15% to 30%)
The commission that Swiggy or Zomato charges (typically 15% to 30% of order value) attracts 18% GST as an intermediary service. If you are on the regular GST scheme (5% without ITC), you cannot claim ITC on this commission GST. This makes the effective commission cost higher than the headline percentage.
Settlement reconciliation
Tax Rate Chart
Typical Swiggy/Zomato Settlement Breakdown
For a Rs 500 order (illustrative)
Order Value
Gross amount before deductions
Platform Commission (25%)
Varies 15% to 30% by contract and distance
GST on Commission (18%)
No ITC available to restaurant at 5% scheme
TDS 194-O (0.1%)
Claimable as credit in ITR
Net Settlement to Restaurant
Received in weekly/fortnightly payout cycle
Source: Platform settlement structure based on standard Swiggy/Zomato contracts (2026)
Reconcile your Swiggy/Zomato monthly statements against your bank credits, GSTR-2B (for commission GST), and Form 26AS (for 194-O TDS). The Income Tax Department's AIS now automatically aggregates TDS data from all e-commerce operators and cross-references against filed ITRs.
ITR Form Selection for Restaurant Owners
Tax Rate Chart
ITR Form Selection for Restaurant Businesses
Choose based on entity type and income computation method
ITR-4 (Sugam)
Section 44AD presumptive; individual/HUF/firm; income under Rs 50 lakh
ITR-3
Individual/HUF maintaining books; claiming actual expenses; income above Rs 50 lakh
ITR-5
Partnership firms and LLPs with restaurant business
ITR-6
Private limited company operating restaurant(s)
Source: Income Tax Department ITR form applicability rules AY 2026-27
Most sole proprietor restaurant owners earning below Rs 50 lakh under Section 44AD file ITR-4. If you maintain full books and claim actual expenses, file ITR-3.
Deductible Business Expenses (Regular Scheme)
If you opt out of Section 44AD and maintain full books of accounts, these expenses reduce your taxable business income:
Fixed and operating costs
- Rent: Premises rent for kitchen, dining area, storage (deductible under Section 30; TDS under Section 194-I at 10% if annual rent exceeds Rs 2,40,000)
- Salaries and wages: Chefs, kitchen staff, waiters, delivery riders, cleaners, managers (TDS under Section 192 on salary exceeding taxable threshold)
- Raw materials: Vegetables, spices, oil, flour, meat, dairy, packaging (largest cost head, typically 28% to 35% of revenue)
- Utilities: Electricity, gas (LPG/piped), water, internet, telephone
- Insurance: Fire, theft, public liability, employee group health
Platform and technology costs
- Aggregator commissions: Swiggy, Zomato, EazyDiner commissions (15% to 30% of order value)
- POS software subscriptions: Petpooja, POSist, Torqus, and similar billing systems
- Online payment gateway charges: Razorpay, PayU, PhonePe Business fees (typically 1.5% to 2%)
Marketing and compliance
- Advertising: Social media ads, food blogger collaborations, signage, menu printing
- Licence fees: FSSAI licence (Rs 100 to Rs 7,500 annually), trade licence, health licence, fire NOC, liquor licence fees
- Professional fees: CA fees for GST and ITR filing, legal consultation
Depreciation on restaurant assets
Restaurant owners invest heavily in kitchen equipment, furniture, and interiors. Depreciation under Section 32 allows you to claim the cost of these assets over their useful life.
Tax Rate Chart
Depreciation Rates for Restaurant Assets (WDV Method)
Written Down Value rates as per Income Tax Rules
Kitchen Equipment (ovens, grills, fryers, mixers)
Plant and machinery; commercial kitchen appliances
Furniture (tables, chairs, counters, shelving)
Dining furniture, bar stools, storage racks
Air Conditioners and Refrigeration
Walk-in coolers, deep freezers, display refrigerators, AC units
Computers and POS Systems
Billing terminals, tablets, servers, CCTV systems
Motor Vehicles (delivery vans)
Used for catering delivery or raw material transport
Interior Fit-out (non-structural)
False ceiling, lighting fixtures, decorative elements on leased premises
Source: Income Tax Rules, Schedule II depreciation rates
Food wastage and spoilage
Food wastage (spoiled ingredients, expired stock, damaged items) is a deductible business loss. Maintain a daily wastage register documenting items discarded, quantity, date, and reason. This register is critical during assessment proceedings. FSSAI guidelines require proper documentation of food disposal, so the same records serve dual compliance purposes.
TDS Obligations for Restaurant Owners
As a restaurant owner, you both receive TDS deductions and must deduct TDS from your own payments.
TDS you must deduct
Tax Rate Chart
TDS Deduction Obligations for Restaurant Owners
Deduct and deposit TDS by the 7th of the following month
Section 192: Staff Salaries
On salary exceeding basic exemption; monthly deduction
Section 194-I: Rent Payments
If annual rent exceeds Rs 2,40,000; TAN mandatory
Section 194C: Contractor Payments
Payments to housekeeping, pest control, maintenance contractors
Section 194J: Professional Fees
CA fees, interior designer fees, food consultant fees exceeding Rs 50,000/year
Source: Income Tax Act TDS provisions for AY 2026-27
To deduct TDS, obtain a TAN (Tax Deduction Account Number), deduct TDS at the applicable rate, deposit it with the government by the 7th of the following month, and file quarterly TDS returns (Form 24Q for salaries, Form 26Q for non-salary payments).
TDS deducted from your income
- Section 194-O: Swiggy/Zomato deduct 0.1% on gross facilitated sales
- Section 194M: If a customer (individual or HUF) pays you more than Rs 50 lakh for catering, they deduct 2% TDS
- Section 194-I: If you sub-lease part of your premises, the sub-tenant deducts 10% TDS on rent paid to you
Verify all TDS credits in your Form 26AS and AIS before filing your ITR.
GST Compliance for Restaurant Owners
Restaurant GST rules are covered in detail in our dedicated guide: GST on Restaurant and Food Services in India. Key points for income tax purposes:
GST is not your income
GST collected from customers (5% on dine-in and takeaway) is not your income. It is held in trust and deposited with the government. When computing business income for income tax, exclude GST from your gross receipts. Your turnover for Section 44AD threshold is the GST-exclusive amount.
GST Composition Scheme
Restaurants with turnover below Rs 1.5 crore can opt for the GST Composition Scheme. Under composition, you pay 5% GST on turnover (not on value of supply), file quarterly CMP-08 statements and annual GSTR-4, and cannot issue tax invoices or claim ITC. You cannot supply through e-commerce platforms (Swiggy/Zomato) under composition.
FSSAI as a deductible expense
Your FSSAI licence fee (Rs 100 for basic registration, Rs 2,000 to Rs 7,500 for state or central licence) is a deductible business expense. FSSAI registration is mandatory for all food businesses and should be treated as a compliance cost alongside GST registration.
Alcohol Sales: A Separate Tax Track
Alcohol is outside GST in India. If your restaurant serves liquor, wine, or beer:
- State excise duty and VAT apply to alcohol sales, not GST
- Alcohol revenue is still taxable as business income under income tax
- Maintain separate accounts for food and alcohol sales
- Liquor licence fees paid to the state excise department are deductible business expenses
- If you buy alcohol from the excise department or wholesaler and sell at MRP plus service charge, your profit margin on alcohol is separate from your food margin
The income tax treatment is the same (business income under PGBP), but the indirect tax compliance is different. Keep food and alcohol accounts separate to avoid reconciliation issues with both GST returns and income tax assessment.
Service Charge and Tip Income
Service charge
If your restaurant adds a service charge (typically 5% to 10%) to bills:
- The service charge is part of your gross revenue for income tax purposes
- GST at 5% applies on the total bill including service charge
- If you distribute the service charge to staff, it becomes their salary income
- As per Ministry of Consumer Affairs guidelines, service charge is voluntary and customers can refuse to pay it
Tips
Cash tips directly given by customers to waitstaff are the employee's income, not the restaurant's. You do not need to account for direct cash tips in your business books. However, if tips are pooled and distributed through payroll, they become salary income subject to TDS under Section 192.
Old Regime vs New Regime for Restaurant Owners
The new tax regime is the default for AY 2026-27. Restaurant owners with business income who want to opt for the old regime must file Form 10-IEA before the ITR filing due date.
Tax Rate Chart
Tax Regime Comparison for Restaurant Owners
Key differences affecting restaurant business income
New Regime (Default)
Standard deduction Rs 75,000; no Chapter VI-A deductions (80C, 80D); simpler
Old Regime (Opt-in)
80C (Rs 1.5 lakh), 80D (health insurance), HRA, LTA available; needs Form 10-IEA
Source: Income Tax Act regime comparison for AY 2026-27
For most restaurant owners using Section 44AD, the new regime is better because business expenses are already deemed (at 92% to 94% of turnover), leaving only the small deemed profit to be taxed at lower slab rates. The old regime benefits restaurant owners who maintain full books and have significant personal deductions (home loan interest, children's tuition, health insurance) that exceed the slab-rate advantage of the new regime.
See our detailed comparison: Old vs New Tax Regime AY 2026-27.
Advance Tax for Restaurant Owners
If your total tax liability exceeds Rs 10,000 in a financial year, you must pay advance tax.
Section 44AD exemption: If you use Section 44AD presumptive taxation, you are exempt from quarterly advance tax instalments. Pay 100% of your tax liability by 15 March of the financial year. Missing this single deadline attracts interest under Section 234B and 234C.
Regular scheme: If you maintain full books, pay advance tax in four instalments: 15% by 15 June, 45% by 15 September, 75% by 15 December, and 100% by 15 March.
Tax Audit Requirements
Tax audit under Section 44AB (Section 63, ITA 2025) is mandatory in these scenarios:
- Gross receipts exceed Rs 1 crore and cash receipts or payments exceed 5% of total
- Gross receipts exceed Rs 10 crore when cash transactions are within 5%
- Section 44AD opted but income declared below the 6% or 8% deemed rate
- Section 44AD opted but gross receipts exceed Rs 2 crore (or Rs 3 crore with under-5% cash)
Restaurants are inherently cash-heavy businesses (counter sales, walk-in customers). Monitor your cash receipt percentage throughout the year. If cash crosses 5% of total receipts, your audit threshold drops from Rs 10 crore to Rs 1 crore.
Tax audit deadline: 30 September of the assessment year (extended to 31 October for transfer pricing cases).
Bookkeeping for Restaurant Businesses
If you are not using Section 44AD, maintain these records:
- Daily sales register: Itemised sales from POS system (dine-in, takeaway, delivery)
- Purchase register: Raw material invoices (vegetables, spices, packaging, consumables)
- Cash register: Daily cash receipts and payments with opening and closing balance
- Bank book: All bank transactions reconciled monthly
- Swiggy/Zomato statements: Monthly settlement reports showing gross sales, commission, TDS, GST
- Salary register: Employee-wise salary, PF, ESI, TDS deductions
- Fixed asset register: Equipment, furniture, vehicles with purchase date, cost, and depreciation
- Food wastage register: Daily spoilage log with date, item, quantity, and reason
Use accounting software like Tally, Zoho Books, or maintain a structured bookkeeping system to automate reconciliation and generate ITR-ready reports.
Common Mistakes Restaurant Owners Make
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Using business code 09001 instead of 09002: 09001 is for hotels with accommodation, not standalone restaurants. Wrong code triggers defective-return notices.
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Claiming Section 44ADA instead of 44AD: Restaurants are business, not a specified profession. 44ADA does not apply.
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Including GST in turnover for 44AD threshold: GST collected is not your income. Use GST-exclusive turnover to check the Rs 2 crore or Rs 3 crore limit.
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Not reconciling aggregator TDS: Swiggy/Zomato TDS at 0.1% under Section 194-O must be claimed in ITR. Missing credits mean paying tax twice on the same income.
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Ignoring cash percentage for audit threshold: Restaurants with over 5% cash receipts have a Rs 1 crore audit threshold, not Rs 10 crore. Track cash daily.
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Not maintaining food wastage records: Without documentation, wastage deductions get disallowed during assessment. Maintain a daily register.
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Mixing personal and business expenses: Using the business account for personal spending, or paying personal bills from the restaurant's POS earnings, creates reconciliation issues and invites scrutiny.
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Not obtaining TAN: If you pay rent above Rs 2,40,000 per year or have salaried staff above the taxable threshold, TAN is mandatory. Non-deduction of TDS attracts penalty under Section 271C.
Work with the Trusted income tax filing in Kondapur, Hyderabad - Tax Garden for expert GST filing, ITR, TDS, ROC, and startup compliance support.
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