Starting April 1, 2025, restaurant services within hotels charging room rents exceeding ₹7,500 per day will be subject to an 18% Goods and Services Tax (GST) with the benefit of input tax credit (ITC). This change, announced by the Central Board of Indirect Taxes and Customs (CBIC), aims to streamline taxation in the hospitality sector.
Background on GST Rates in Hospitality
Previously, the GST rate for restaurant services was determined by the hotel’s “declared tariff.” Hotels with declared tariffs above ₹7,500 per day were categorized as “specified premises,” and their restaurant services attracted an 18% GST with ITC. Conversely, standalone restaurants and those within hotels with lower tariffs were taxed at 5% without ITC.
Key Changes Effective April 1, 2025
- Redefinition of “Specified Premises”: The concept of “declared tariff” is being replaced by the “value of supply,” which refers to the actual transaction value charged for hotel accommodation. Hotels where the room rent exceeds ₹7,500 per day at any point during a financial year will be classified as “specified premises” for the subsequent fiscal year.
- GST Implications for Restaurant Services:
- In “specified premises,” restaurant services will attract an 18% GST rate with ITC.
- For hotels with room rents not exceeding ₹7,500 per day, restaurant services will continue to be taxed at 5% without ITC.
- Opt-In Provision for Hotels: Hotels anticipating room rents above ₹7,500 per day in the upcoming fiscal year can file an “opt-in” declaration with GST authorities between January 1 and March 31 of the current fiscal year. Newly registered hotels must submit this declaration within 15 days of registration to be classified as “specified premises.”
Rationale Behind the Amendment
The shift from “declared tariff” to “value of supply” reflects the hospitality industry’s move towards dynamic pricing models. This change aims to provide a more accurate and fair assessment of tax liabilities based on actual transaction values rather than predetermined rates.
Industry Response
The Federation of Hotel & Restaurant Associations of India (FHRAI) has expressed concerns regarding the linkage of food and beverage GST rates to room tariffs. They have urged the government to reconsider this approach, advocating for a uniform GST rate for restaurant services irrespective of room pricing.
The revised GST framework for restaurant services in hotels with room rents exceeding ₹7,500 per day introduces significant changes for the hospitality sector. Stakeholders must familiarize themselves with these updates to ensure compliance and optimize their tax positions. As the industry adapts, ongoing dialogue between policymakers and hospitality professionals will be crucial to address any challenges and ensure a smooth transition.
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