GST on Hotels and Restaurant: Clear Yet Unclear

By Bhavya Popat, Advocate

Reason for selection of this topic:

Hospitality:

• One of the fastest growing industry.
• Many of the professionals will be having clients from the industry.
• Others will soon have due to fast development.
• I am associated to this industry as being part of a management of Flamingo Club & Resort Nr Diu. 

Hospitality industry is one of the fastest growing industry in the Country. Like any other manufacturing, trading & service Sector, post implementation of Goods & Services Tax, the hospitality industry has also seen major changes in the Tax Structure. The industry had to adjust to the new regime and change the way of its operations. In this article, I have tried to explain points and issues concerning to the Hospitality Industry.

1. Classification HSN/SAC Code:

There are basically two categories of services included in hospitality industry.

1. Accommodation service
2. Restaurant Service

Both the services are covered under the heading 9963 under the classification of services. The chapter of both the service covered is 99 and the heading is 63. The service code of the both are different.

1. Accommodation service SAC (HSN)   9963 11
2. Restaurant Service SAC (HSN)   9963 31
3. Other Services like laundry, Car Rental: SAC (HSN) as per respective service

1. Changes in Hotel service by 15/2025, Dt. 17.09.2026

As per the 56^th council recommendation and for the purpose of rationalization of taxes in GST 2.0, there has been reduction in the GST rates of Accommodation service for Hotel Industry. The rates of accommodation service for any Unit (Room) up to 7500/- has been reduced to 5% with a condition that the ITC on providing the same service is not been taken.

The rate reduction is definitely good for the customers but the Hotel as an industry has started to avail the pain as the Input Tax Credit is not allowed. This industry has inputs that are mainly been taxed at 18%. The examples of the same are Rent service, Franchisee fee service, OTA Commissions etc. This has resulted in to a huge loss for the business.

2. Changes in Restaurant Service wide Notification CTD 05/2025, Dt. 16.01.2025

There was a very big outcry in the HORECA (Hotel, Restaurant, Café) industry regarding the rate of GST on restaurant being decided by the declared tariff of the hotels. Various associations connected with the industry like FHRAI, FAITH etc were making representations regarding the same since years for removal of declared tariff for the determining rates of the restaurant which are connected with the Hotels.

Finally, the GST council in the 55^th Recommended that the declared tariff concept should be done away with and the Central Government while accepting the recommendations issued notification 05/2025, dt. 16.01.2025. This notification removes the concept of Declared tariff by omitting the explanation xxxv, in the parent notification CTR 11/2017, dt. 28.06.2017. The said notification also amends the parent notification by amending the explanation clause xxxvi for “Specified premises”. From 01.04.2025, following shall be the explanation for the “Specified Premises”

[(xxxvi) “Specified premises”, for a financial year, means,-

(a) a premises from where the supplier has provided in the preceding financial year, ‘hotel accommodation’ service having the value of supply of any unit of accommodation above seven thousand five hundred rupees per unit per day or equivalent; or

(b) a premises for which a registered person supplying ‘hotel accommodation’ service has filed a declaration, on or after the 1st of January and not later than 31st of March of the preceding financial year, declaring the said premises to be a specified premises; or

(c) a premises for which a person applying for registration has filed a declaration, within fifteen days of obtaining acknowledgement for the registration application, declaring the said premises to be a specified premises;]

Thus, in simple words this definition covers following three types of Hotels to be Specified Premises:

1. Premises where any room has done billing of above 7500/- in the Previous year. No declaration needed as per notification, but one may for sake of clarification file declaration.

2. Premises where the billing of any room is up to 7500/- but voluntary opts for being a Specified Premises,

3. A hotel applying for new registration which opts voluntarily for being specified premises.
4. History and amendments of G.S.T. rates on Restaurant and hotel accommodation:

There are many question that has been frequently asked to the Tax Professionals. I have tried to sum up some of the most frequently asked question from the hotel and industry.

4. GST on Restaurant Service supplied through E Commerce (Swiggy, Zometo etc.)
   1. Reverse Charge or Forward Charge???

There is an important change that has been made w.e.f. 01.01.2022 wide notification no Central Tax 17/2021, dt. 18.11.2021 that E commerce operator shall be liable for the discharge of GST on every sale of restaurant service other than Restaurant sale from Specified Premises. In other words only restaurant who are in specified premises are required to discharge the liability of GST on restaurant sale in case of sales through E commerce. E Commerce shall be liable to discharge the GST liability in case of every other Restaurant.

1. Composition Scheme applicable for Restaurant which sales through E Commerce?

Yes, Restaurant can opt for composition even when they are supplying the food through e commerce operator. Section 10 bars the restaurant only when the goods are subject to TCS. The TCS on the same has been removed w.e.f. 18.11.2021.

5. Frequently Asked Questions:

1. My client is having just a one bill which is having a value of unit of accommodation is 7700/-. Does he still need compulsory to go for 18% GST rate on restaurant?

Answer: Yes, Even a single bill shall fall under criteria (a) of Central tax rate Notification 05/2025, dt. 16.01.2025 and shall be liable to pay 18% on the Restaurant sale.

2. My client had some rooms where unit value of accommodation is over 7500/-. He has failed to file the declaration as mentioned in the notification. In such a scenario, is he still liable to pay GST at 18%?

Answer: Yes, in such a scenario also your client falls under the criteria (a) of the above referred notification and thus, liable to pay GST @ 18% on Restaurant sales.

3. Has the Declared Tariff any concerns with respect to the determination of the rate of GST on Hotel room rent presently?

Answer: No, Presently the declared tariff has got no relevance with the determination of the GST rate on Hotel room rent. Presently the rate of GST on room rent is determined by the value of supply of a unit of accommodation.

4. Has the Declared Tariff any concerns with respect to the determination of the rate of GST on Restaurant presently?

Answer: No, from 01.04.2025 the rate of Restaurant, situated within a hotel (Residential) is determined by value of supply per unit of that particular hotel.   

5. It is possible and practical to make an rental agreement and separate the restaurant portion so as to take the benefit of 5% rate under GST, even in situation where the room rent goes over 7500/-?

Answer: No, it is not possible and practical to make an rental agreement and separate the restaurant portion as the key thing determining the rate is “Specified Premises” Once the restaurant is situated within the “Specified Premises”, i.e. the hotel, it will be treated as one unit only.

6. One has the option to select the GST rate of 18% and claim credit even though the restaurant is not in specified premises?

Answer: Yes, The Restaurant has the option to select the rate of 18% and have the option of claiming the Input Tax Credit. It is mandatory by law to opt for 5% GST rate for them.

7. One has the option to select the GST rate of 18% and claim credit even if the restaurant is a standalone restaurant?

Answer: No, Standalone restaurant has not got such option. They have compulsory to opt for 5% GST rate without ITC.

8. Do hostel providing services to students enjoy any exemption under GST?

Answer: No, the hostel do not have any specific exemption. After the removal of the exemption of room rent for hotel accommodation, up to 999/-, it becomes necessary to plan the GST for hostels. If the services of hostel are provided by an educational institution to its students, they may claim the exemption under entry 66 of rate notification 12/2017, dt. 28.06.2017.

9. I have charged tariff of Rs 6000/- per room. The extra person cost comes to Rs 1750/-. Thus, the room charge along with extra person is 7750/-. Would I be liable to be taxed at 18% or 12%?

Answer: You will be liable to pay GST @ 18% as the value of supply for a particular unit (Room) has been over 7500/-. or more. It is important to note that now the total revenue fetched by a room is to be taken care of for determining the rate under the GST Regime.

10. I have sold a package in AP (American Plan) which includes all the meals for a couple for Rs. 9000/- including extra person. Out of these, my room tariff is 4500/- and rest of the 4500/- is towards the food, i.e. Breakfast, Lunch and Dinner. Will I be liable to be taxed at 18% or 12%?

Answer: When a room is sold as a package, the said supply of service is to be treated as Composite Service where the main supply would be Hotel Accommodation. Here the value of supply of a unit shall be said to be over 7500 18% GST shall be applicable on such transection.

11. I am selling a package of Rs 5000/- on CP (Room with Breakfast) basis. Out of the amount of Rs 5000/- Room charges are 4500/- and breakfast charges are 500/. Do I have to charge 12% GST on whole amount of Rs 5000/- or I have an option to segregate 4500/- as GST on room taxed at 12% and 500/- as under restaurant service?

Answer: No, you don’t have the option to segregate both service when sold as a package. Your hotel is selling a package which shall constitute Composite service. In case of Composite service the rate of principle service shall be applicable and thus, the liability of GST shall be 12% on amount of package i.e. 5000/-

12. What are the rates on Outdoor catering presently?

Answer: The rates on Outdoor catering has been made parallel to restaurant service. Broadly speaking the rate on GST on Outdoor catering other than the specified premises is 5% without ITC. Whereas the rate on Outdoor catering in Specified Premises is 18% with ITC. Here specified premises shall have the same meaning as per the restaurant services.

13. Is there an option for the restaurant to opt for Composition?

Answer: Yes, Restaurant do have an option to opt for composition. In such case the rate of GST will be 5%. But in my personal view it is normally not prudent to Opt for composition for restaurant business, as the rate of tax are 5% in both Composition and Non Composition. If a restaurant has opted for composition, they shall not be eligible to charge GST from its customers. On the other hand, the restaurant having not opted for composition can charge the 5% GST from the customers.

Demand of the Industry:

Since the inception of Goods & Services Tax, 2017 from July 2017, there has been lots of ambiguity and confusions regarding taxation on HoReCa industry. The Confusion has increased with every amendment that has been made. In my opinion, following may be the taxation provisions as far as the hotel industry is concerned:

On Hotel accommodations:

Ideally GST rate of 12 % with ITC was a good option. Since there is no 12% rate available, 5% without ITC would be a good proposition, subject to the hotel client which may be advised to adjust the rates considering the reversal of the ITC.

On Restaurant and Food Supply:

In my view, linkage between the room tariff and the food service should be removed. 18% GST should only be made compulsory for those hotels who have 4* or 5* Certification from the Ministry of Tourism. Rest all the restaurant within the hotels should have option to select between 5% without ITC or 18% with ITC.

Restaurants facing quarrels?? Think of Composition option!!

Restaurant within the hotel premises being specified premises facing issue regarding the 18% GST from Customers. This specially happens to be in Mid Segment hotel catering mainly to middle and upper middle class who often quarrel that a particular hotel in the nearby area is charging 5% GST and why your hotel is charging 18% GST. This is even making the restaurant in the specified premises lose competition with the standalone restaurants.

One solution to this problem may be to opt for Composition option for Restaurants within the specified premises with a separate GST registration. The definition of specified premises is given in the notification 11/2017 only. This notification is issued under the powers conferred under section 9 of the CGST Act, 2017. This is a bold view and is subject to difference of opinion.

These are my views on GST on Hotels and Restaurant. I hope this article may prove helpful to tax fraternity and also the businessmen. In my view, the changes under the GST for this sector has created many confusion. There is lack of clarity in many matters in the industry. FAQ has been specifically meant to clarify some of the important questions from the industry. I shall request readers to send any more such question and I shall try to reply or cover the same in updated version of the article.