Looking for expert help with Income tax and GST for sweet shop owners 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.
Key Takeaways
- Sweets, namkeen, chikki, chocolates, cakes and ice cream are all taxed at 5% GST from 22 September 2025 (Notification 9/2025-Integrated Tax (Rate), Schedule I).
- Milk and paneer are GST-exempt, so the biggest purchase in most sweet shops gives you no input tax credit (ITC).
- Anything served from a dine-in or eating counter is restaurant service at 5% without ITC. Split your counters and your bills.
- Composition at 1% beats the regular scheme when your ITC is below about 3.76% of sales. Do the maths before you opt in.
- Shop profit can be declared under Section 44AD at 6% of digital receipts and 8% of cash receipts.
What is the GST rate on sweets and namkeen in India? Sweetmeats (mithai) and namkeen, bhujia and mixture attract 5% GST, whether loose or pre-packaged, from 22 September 2025 under Schedule I, S. No. 142 and 143 of Notification 9/2025-Integrated Tax (Rate). If the same sweets are served from a dine-in counter, the supply is restaurant service, also at 5% but without input tax credit.
A sweet shop runs two businesses under one board. You're a small manufacturer, turning milk, sugar and ghee into mithai in the back kitchen. You're also a retailer, and often a snack counter with a few tables. GST treats those activities differently, and half your peak-season sales come in the three weeks around Diwali. This guide covers what a sweet or namkeen shop owner needs for GST and for the AY 2026-27 income tax return. If you mainly bake bread and cakes, see our bakery tax guide. For a full restaurant, see our restaurant GST guide.
What GST rate applies to what you sell and what you buy?
The GST rate rationalisation of September 2025 moved almost everything in a sweet shop to 5%. The exceptions are the ones that catch people out: exempt dairy inputs, and aerated drinks at 40%.
Comparison
GST Rates for a Sweet Shop (from 22 September 2025)
| Item | HSN | GST rate |
|---|---|---|
| Sweetmeats (mithai) | 2106 | 5% |
| Namkeen, bhujia, mixture, chabena (loose or packed) | 2106 90 | 5% |
| Chikki, gajak, til revdi, batasha, mishri, groundnut sweets | 1702 or 1704 | 5% |
| Sugar confectionery (no cocoa) | 1704 | 5% |
| Chocolates | 1806 | 5% |
| Cakes, pastries and other bakers' wares | 1905 | 5% |
| Ice cream (bought in and sold from your freezer) | 2105 | 5% |
| Beverages containing milk (flavoured milk) | 2202 99 30 | 5% |
| Aerated or sweetened soft drinks | 2202 10 | 40% |
| Milk, UHT milk (purchase) | 0401 | Exempt |
| Chena or paneer (purchase) | 0406 | Exempt |
| Ghee and butter (purchase) | 0405 | 5% |
| Sugar (purchase) | 1701 | 5% |
| Paper cartons and sweet boxes (purchase) | 4819 10, 4819 20 | 5% |
| Commercial LPG cylinders (purchase) | 2711 | 18% |
Source: Notification 9/2025-Integrated Tax (Rate), Schedule I S. No. 7, 105, 107, 110, 116, 123, 141, 142, 143, 151, 322; Schedule II S. No. 30; Schedule III S. No. 1. Notification 10/2025-Central Tax (Rate), S. No. 15 and 17
Ice cream is worth a note. CBIC clarified that an outlet selling already-made ice cream supplies goods, not restaurant service (Circular 164/20/2021-GST, para 4). At the time that meant 18%. Ice cream is now in the 5% schedule, so your freezer sales go at 5% with ITC available.
Most sweet shops price by the kilo with tax included. So on a kilo of kaju katli sold for Rs 1,050, GST is Rs 1,050 x 5/105 = Rs 50 and the taxable value is Rs 1,000. Don't add 5% on top of a tax-inclusive price board.
Is your counter a shop or a restaurant for GST?
This is the question that decides whether you get ITC.
Notification 11/2017-Central Tax (Rate) defines "restaurant service" as supplying food or drink as part of a service by a restaurant or eating joint, whether consumed on or away from the premises. Entry 7(ii) taxes it at 5%, on the condition that you don't take ITC on the goods and services used for it. CBIC has clarified that takeaway and door delivery from such an outlet are also restaurant service (Circular 164/20/2021-GST, para 3).
In practice that gives you two kinds of sale:
- Retail counter. A customer buys half a kilo of barfi, packed in a box, and leaves. You're selling goods. GST is the item rate (5% for sweets) and you can claim ITC on inputs.
- Eating counter. A customer orders samosa and jalebi at a table, or a plate of chaat to take away from the same counter. That's restaurant service at 5%, and ITC on inputs used for it isn't allowed.
Advance rulings on mixed sweet shop and restaurant outlets have not all gone the same way, so don't rely on how a neighbouring shop bills. Physically separate the two counters, run separate invoice series, and keep sales records for each. If you're unsure how your setup will be treated, a CA can help you document it or apply for an advance ruling in your state.
The ITC catch. Where the same inputs (ghee, sugar, LPG, rent) feed both counters, you must reverse the share of common ITC that relates to dine-in sales, treating restaurant service as if it were an exempt supply (Explanation (iv) to Notification 11/2017-Central Tax (Rate); Rule 42, CGST Rules). If dine-in is 25% of your turnover and common ITC for the month is Rs 20,400, you reverse Rs 5,100 and claim Rs 15,300. See our Rule 42 and 43 guide for the full formula.
When do you need GST registration?
It depends on whether you sell only goods or also run a dine-in counter.
- Goods only (retail counter): Rs 40 lakh aggregate turnover in most states (Notification 10/2019-Central Tax). Telangana, Uttarakhand, Puducherry, Sikkim, Tripura, Arunachal Pradesh, Manipur, Meghalaya, Mizoram and Nagaland are excluded from that limit. In Telangana the limit is Rs 20 lakh.
- Goods plus dine-in service: the Rs 40 lakh limit is only for suppliers of goods alone. With a restaurant counter you fall back to Rs 20 lakh (Section 22(1), CGST Act), or Rs 10 lakh in some special category states.
A Hyderabad shop selling Rs 18 lakh of boxed sweets and Rs 4 lakh of chaat at tables has Rs 22 lakh turnover. It must register. Our FSSAI registration guide covers the separate food licence you also need.
Regular scheme or composition: which leaves more money?
A shop that makes its own sweets is a manufacturer for composition purposes, so it pays 1% of turnover (Section 10(1)(a), CGST Act read with Rule 7). A dine-in counter under composition pays 5% of that turnover (Section 10(1)(b)). Under composition you can't collect GST from customers, can't claim any ITC, can't sell inter-state, and you issue a bill of supply instead of a tax invoice.
Here's one month for a shop with only retail counter sales. Customers pay Rs 8,40,000 including tax either way.
Comparison
One Month, Rs 8.4 Lakh of Counter Sales: Regular vs Composition
| Item | Regular scheme | Composition (manufacturer) |
|---|---|---|
| Tax on sales | Rs 8,40,000 x 5/105 = Rs 40,000 | 1% x Rs 8,40,000 = Rs 8,400 |
| GST on milk Rs 2,50,000 (exempt) | Nil | Nil |
| GST on sugar Rs 60,000 at 5% | Rs 3,000 ITC | Rs 3,000 cost |
| GST on ghee Rs 1,20,000 at 5% | Rs 6,000 ITC | Rs 6,000 cost |
| GST on dry fruits Rs 80,000 at 5% | Rs 4,000 ITC | Rs 4,000 cost |
| GST on sweet boxes Rs 40,000 at 5% | Rs 2,000 ITC | Rs 2,000 cost |
| GST on commercial LPG Rs 30,000 at 18% | Rs 5,400 ITC | Rs 5,400 cost |
| Total GST cost to the shop | Rs 20,400 to suppliers + Rs 19,600 to government = Rs 40,000 | Rs 8,400 + Rs 20,400 = Rs 28,800 |
Source: Tax Garden illustration. Rates: Notification 9/2025-Integrated Tax (Rate); Section 10(1)(a), CGST Act
Composition leaves this shop Rs 11,200 more every month. The rule of thumb: on 5% goods, the regular scheme always costs 4.76% of GST-inclusive sales in total, because ITC only changes whether that GST reaches the government through your supplier or through you. Composition costs 1% plus the ITC you lose. So composition wins when your ITC is below about 3.76% of sales. A shop that buys mostly exempt milk and paneer usually falls under that line. A shop with heavy ghee, dry fruit, packaging and LPG purchases may not. Shops that manufacture ice cream cannot opt for composition at all (Section 10(2)(e), Notification 14/2019-Central Tax).
Two other points before you opt in:
- Corporate Diwali orders. A composition dealer can't issue a tax invoice. That matters less than you'd think for gift boxes, because the buyer can't claim ITC on goods given as gifts anyway (Section 17(5)(h), CGST Act). It matters for B2B customers such as caterers or hotels who resell your sweets.
- Gift hampers are mixed supplies. A box with sweets, dry fruits and a bottle of cola sold at one price is taxed at the highest rate in it (Section 8(b), CGST Act). With aerated drinks at 40%, the whole hamper goes to 40%. Keep drinks out of hampers, or price and bill them separately.
Our composition scheme guide covers eligibility in detail.
How is a sweet shop's profit taxed?
Step-by-Step Guide
Choosing How to Report Your Shop Income
Check Section 44AD eligibility
Resident individual, HUF or partnership firm (not LLP). Turnover up to Rs 2 crore, or up to Rs 3 crore if cash receipts are within 5% of total receipts.
Split receipts by mode
Receipts by UPI, card, cheque or bank transfer received by the return due date count at 6%. Cash receipts count at 8%.
Compare with your real margin
If actual net profit after ingredients, wages, rent and LPG is lower than 6% or 8%, you can keep books and declare actual profit instead.
Pick the tax regime
Apply new or old regime slabs to total income. Under the new regime, income up to Rs 12 lakh gets a full Section 87A rebate.
File the right form
ITR-4 for Section 44AD (if total income is within Rs 50 lakh and other conditions are met); ITR-3 if you keep full books.
Source: Section 44AD and Section 87A, Income-tax Act 1961; Finance Act 2025
Example 1 (AY 2026-27, new regime): Turnover Rs 1.2 crore, of which Rs 96 lakh by UPI and card, Rs 24 lakh in cash. Cash is 20% of receipts, so the Rs 2 crore limit applies and you're within it.
- Deemed profit: 6% x Rs 96 lakh + 8% x Rs 24 lakh = Rs 5,76,000 + Rs 1,92,000 = Rs 7,68,000.
- Tax on slabs: nil up to Rs 4 lakh, 5% on the next Rs 3,68,000 = Rs 18,400.
- Section 87A rebate (income up to Rs 12 lakh): Rs 18,400. Tax payable: nil.
Example 2 (AY 2026-27, new regime): Turnover Rs 2.8 crore with only Rs 8.4 lakh (3%) in cash. Cash is within 5%, so the Rs 3 crore limit applies.
- Deemed profit: 6% x Rs 2,71,60,000 + 8% x Rs 8,40,000 = Rs 16,29,600 + Rs 67,200 = Rs 16,96,800.
- Tax on slabs: Rs 20,000 (Rs 4-8 lakh at 5%) + Rs 40,000 (Rs 8-12 lakh at 10%) + Rs 60,000 (Rs 12-16 lakh at 15%) + Rs 19,360 (Rs 96,800 at 20%) = Rs 1,39,360.
- No 87A rebate (income above Rs 12 lakh). Add 4% cess of Rs 5,574. Total: Rs 1,44,934.
Pushing the counter to UPI has a direct payoff here. At 20% cash, the same Rs 2.8 crore turnover would be outside Section 44AD altogether, because the limit drops to Rs 2 crore.
Leaving Section 44AD has a cost. If you opt out after using it, you can't come back for five years, and in those years you need books and a tax audit whenever income exceeds the basic exemption limit (Section 44AD(4) and (5), Section 44AB(e)). From tax year 2026-27 (FY starting 1 April 2026) the scheme sits in Section 58 of the Income-tax Act 2025; AY 2026-27 returns still use Section 44AD. Compare regimes with our old vs new regime guide, and see our Section 44AD guide for the conditions in full.
What mistakes do sweet shop owners make most often?
- One bill book for everything. Mixing counter sales and dine-in orders on one invoice series makes it hard to support either the goods rate or the restaurant rate, and hard to work out the ITC reversal.
- Claiming full ITC while running tables. Common ITC must be reversed for the dine-in share. Claiming it all is a common audit finding.
- Putting cola in gift hampers. One 40% item pulls the whole hamper to 40% under the mixed supply rule.
- Taking big cash advances for wedding and festival orders. Receiving Rs 2 lakh or more in cash from one person for one order breaks Section 269ST, and the penalty under Section 271DA equals the amount received. See our cash transaction limits guide.
- Paying the milk vendor in cash without checking the exception. If you claim actual expenses, Section 40A(3) disallows cash payments above Rs 10,000 a day to one person. Rule 6DD excludes payments made to the actual producer of dairy produce, but not to a middleman or distributor. See our Section 40A(3) guide.
How Tax Garden helps
Tax Garden files GSTR-1 and GSTR-3B for sweet and namkeen shops with retail counter and dine-in sales billed and reported separately, and the common ITC reversal worked out each month. We also prepare your ITR-4 or ITR-3 and check whether presumptive income or actual books gives the lower lawful tax. See our pricing for plans.
