Hotel Restaurants: 18% GST

Hotel Restaurants Hit with 18% GST: What's Changing and Why

Real Estate

19 days agoPWG Publications

Introduction to GST on Hotel Restaurant Services

The Central Board of Indirect Taxes and Customs (CBIC) has clarified significant changes in the Goods and Services Tax (GST) applicable to restaurant services provided within hotels. From April 1, 2025, hotels with room rents exceeding Rs 7,500 per day will be classified as 'specified premises,' meaning that restaurant services within these hotels will attract an 18% GST rate with input tax credit (ITC)[1][4]. This move aims to streamline tax compliance for the hospitality sector, aligning with the dynamic pricing models increasingly adopted by hotels[1].

Understanding the GST Rates for Hotel Accommodations

The GST rates on hotel accommodations have been standardized across India, providing clarity and consistency for both hotels and travelers. Here's a breakdown of the GST rates applicable based on room tariffs:

Room tariffs below Rs 1,000 per day: GST is applicable at 12%[3][5].
Room tariffs between Rs 1,001 to Rs 7,500 per day: GST is applicable at 12%[2][5].
Room tariffs above Rs 7,500 per day: GST is applicable at 18%[2][4].

GST Implications for Restaurants in Hotels

Restaurants located within hotels face different GST rates depending on the room tariffs:

Restaurants in hotels with room tariffs less than Rs 7,500 per day: These services attract a 5% GST without ITC[1][3].
Restaurants in hotels with room tariffs of Rs 7,500 or more per day: These services will be subject to 18% GST with full ITC[1][3].

Benefits of the New GST Policy

The shift towards applying GST based on the transaction value of hotel accommodations simplifies compliance for hotel operators. This change also allows hotels to opt-in for 'specified premises' classification, providing the benefit of input tax credit even if their room tariffs do not exceed Rs 7,500 in the preceding financial year[1][4].

Key Amendments Effective from April 1, 2025

Several key amendments affecting hotels and restaurants are set to come into effect from April 1, 2025:

Definition of Specified Premises: Hotels charging above Rs 7,500 per day in the previous financial year will be considered 'specified premises' for the next fiscal year[1].
GST Rate for Restaurants in Hotels: Restaurants in 'specified premises' will attract 18% GST with ITC[1][4].
Compliance Simplification: Hotels can opt-in for 'specified premises' classification, allowing restaurants to benefit from ITC even if room tariffs are below Rs 7,500[1][4].

Implications for Small and Medium Hotels

For smaller hotels or those with room tariffs below Rs 7,500 per day, there is no need to file an opt-in declaration for 'specified premises' status. These businesses will continue to pay 12% GST with ITC, maintaining their existing compliance framework[4].

Impact on the Hospitality Industry

The GST regime has standardized taxation across India, reducing complexity and costs for customers. However, it also presents challenges related to compliance and maintaining profitability. Hotels must adapt to these changes to optimize their tax positions and comply with the updated regulations effectively[5].

Conclusion

The recent GST amendments targeting restaurants within hotels aim to enhance tax compliance and offer benefits like ITC. While these changes may increase administrative burdens, they align with modern pricing strategies and provide clarity for businesses in the hospitality sector. As the Indian hospitality industry continues to grow, understanding and adapting to these GST changes will be crucial for hotel operators looking to maintain competitiveness and profitability.

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