Customers likely to gain as high-end hotels get GST options on dining

The GST Council decided to suitably amend the CGST Act to link GST on restaurant services with actual room tariff provided by the hotel

In a major change for the hospitality industry and in what could be a good news for diners, the Goods and Services Tax (GST) Council has decided to allow high-end hotels to choose between two indirect tax rates for restaurant services provided on their premises.

 

  Starting April 1 next year, according to the GST Council’s decision last week, such hotels will have the option to choose between two GST rates: 5 per cent without Input Tax Credit (ITC) or 18 per cent with ITC, if the value of accommodation rented out exceeds Rs 7,500 per unit a day in the previous year. Currently, these hotels don’t have the option as they have to charge 18 per cent with ITC.

 

To avail of one of the options, these hotels will have to submit a declaration before the start of the financial year or upon obtaining registration. At present, hotels with a “declared tariff” (room rent before discount) above Rs 7,500 are charged GST at 18 per cent with ITC for restaurant services, while hotels with room rent below Rs 7,500 are charged 5 per cent GST for restaurant services without ITC. However, since the industry is seasonal in nature and often offers discounts during the off-season, actual room rents can fall below Rs 7,500, creating confusion about the applicable GST rate for restaurant services.

 

The GST Council has decided to suitably amend the CGST Act to link GST on restaurant services with the actual room tariff provided by the hotel. This flexibility aims to align the tax structure with the dynamic pricing models used in the hospitality industry, providing hotels with the opportunity to select the tax rate that best suits their operational strategy.

 

Pratik Jain, partner at PwC said: “These restaurants would need to compute the input credit loss while arriving at the option to be exercised. The customers would expect the benefits to be passed on to them.”

 

Saurabh Gahoi, senior vice president-operations (India) at Ramee Group of Hotels, welcomed the move, saying it enables hotels to tailor their approach based on their business model and customer preferences. “This option gives us greater control over pricing and cost management, allowing us to offer competitive rates while maintaining the quality of our services. We are committed to ensuring a seamless transition by April 1,” he said.

 

According to Sudipta Bhattacharjee, partner, indirect taxes, at Khaitan & Co, subject to a review of the fine print of the actual amending notification, it appears that this change from April 2025 will be restricted to restaurants in high-end hotels. “The rationale behind this restrictive approach is not clear since restaurants in general have been advocating for such an option to enable them to reduce costs by availing input GST credits,” he added. 

What changes

 

Two GST rates are available from April 1

 

> 5% without ITC

> 18% with ITC

 

> GST on restaurant services will be based on actual room tariff, not the declared tariff

> Experts say move will benefit the industry and customers

> At present, hotels with room rent above Rs 7,500 pay 18% GST with ITC