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
> 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
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