New Delhi, April 12, 2025 — Starting April 1, 2025, dining at restaurants within hotels may become more expensive for many patrons. The Central Board of Indirect Taxes and Customs (CBIC) has implemented a revised Goods and Services Tax (GST) structure, significantly impacting how restaurant services within hotels are taxed.
Key Changes in GST Rates
Under the new guidelines, the GST rate for restaurant services inside hotels is now determined by the room tariffs of the hotel:
- 18% GST with Input Tax Credit (ITC): Applicable to restaurants in hotels where any room was rented for more than ₹7,500 per day in the previous financial year.
- 5% GST without ITC: Applicable to restaurants in hotels where room tariffs did not exceed ₹7,500 per day in the preceding financial year.
This shift replaces the earlier system that relied on the “declared tariff” concept, which often led to ambiguities due to discounts and dynamic pricing models. RB Associates and Tax Matters+5CAclubindia+5TaxGuru+5
Rationale Behind the Change
The CBIC’s decision aims to bring clarity and fairness to the taxation of restaurant services within hotels. By linking GST rates to the actual transaction value of hotel accommodations from the previous financial year, the government seeks to ensure that the tax burden is proportionate to the services provided.
Additionally, hotels now have the option to opt for the 18% GST rate with ITC for their restaurant services, regardless of room tariffs, by submitting a declaration before the start of the financial year or upon obtaining registration. Business & Finance News+6CAclubindia+6TaxGuru+6
Industry Concerns and Calls for Reform
Despite the government’s efforts to streamline the GST structure, industry stakeholders have expressed concerns. The Federation of Hotel & Restaurant Associations of India (FHRAI) has urged the government to delink GST on food and beverage (F&B) services from room tariffs. They argue that tying restaurant GST rates to room prices creates operational challenges and unfairly disadvantages hotel-based restaurants compared to standalone establishments.
Pradeep Shetty, Vice President of FHRAI, highlighted that room rates fluctuate due to seasonal demand, leading to inconsistent GST rates for restaurant services. This unpredictability can deter customers and complicate compliance for hotel operators.
Implications for Consumers and the Hospitality Sector
For consumers, dining at hotel restaurants where room tariffs exceed ₹7,500 may now attract a higher GST rate of 18%, potentially increasing meal costs. This change could influence dining choices, with some patrons opting for standalone restaurants that continue to charge a uniform 5% GST without ITC.
For the hospitality industry, the revised GST structure necessitates careful financial planning and compliance. Hotels must assess their room tariff histories to determine applicable GST rates for their restaurant services and decide whether to opt for the 18% rate with ITC. Proper declarations must be filed within stipulated timelines to ensure compliance and avoid penalties.
Conclusion
The government’s move to revise GST rates for restaurant services within hotels aims to create a more transparent and equitable taxation system. However, the hospitality industry continues to advocate for further reforms to address operational challenges and ensure fair competition across all dining establishments.The Times of India+2CAclubindia+2RB Associates and Tax Matters+2
As these changes take effect, both consumers and hotel operators must stay informed and adapt to the evolving tax landscape.
