Isn’t it unfair to Restaurants attached to Hotels???
Dt. 08.05.2025: There has been a major change in the rate of Goods and Services Tax (GST) rates on Restaurants Services for restaurants located withing the specified premises. The GST rates on these hotels has been raised to 18% from the previous rate of 5% w.e.f. 01.04.2025. Specified premises here means the hotels having supplied services more than 7500 for any of the rooms in the previous year. In other words any restaurant which is situated within the premises of the hotel where any room in the previous year has been billed more than 7500/- shall have compulsory to opt in for GST rates at 18%.
The said change has created a trouble for many restaurants specially catering the middle and upper middle class. The GST rates on 18% are hurting their sales and customers. These restaurant are facing this issue because the standalone restaurants are still charged to GST at 5%. The basis of the GST rate discrimination seems unrealistic as the value of supply of 7500/- is quite common these days in budget hotels and mid segment hotels too. The reason of being this is that many hotels sells plans on American Plan (AP) or even Modified American Plan (MAP) basis where the room is sold as a package. Any budget or mid segment hotel selling rooms at AP or MAP basis having just a package price of 2500 person having all meals having only one extra person in a particular room shall make the value of supply go beyond 7500/-. Package price of 2500 with all meals is quite a budget or mid segment rate and can never be considered to be a luxury or high segment rate.
This ultimately is killing the basic purpose of the GST rates of 5% which was introduced to make restaurant GST rates more affordable, realistic and practical. Initially the rate on Restaurant Service was 18% and the same was brought to 5% for restaurants which were aimed to cater the lower, middle and upper middle class with some conditions. Prior to the change made from 01 April, the GST rates on restaurant were dependent on the declared tariff of the hotel where the restaurant were situated. The same was also impractical as it was very tough to find the declared tariff and a small mistake on the part of the declaration of tariff may land restaurant in to a big financial trouble. Thus, there were many representation on this regards to make some realistic change on this aspect.
Talking on this to Tax Today leading hotelier and President of Diu Hotel Association Mr. Yatin Fugro said that “The main purpose to bring down GST rate to 5% was to protect the Middle Class from excessive burden of GST on restaurant which is no more a luxury but a part of day to day life for even middle class people. The amendment which has been made effective may result in to many mid segment hotels compulsory to go in to 18% GST rate. This shall at the ground level hurt the customers and mid segment at large. There should be a practical amendment to this and the hotels may be voluntarily allowed to chose rate between 5% and 18%.”
This amendment has brought a major issue for mid segment hotels which usually cater to the Middle and upper middle class. Not only this they are now at an added disadvantage compared to the standalone restaurant which enjoy the 5% rate presently. Industry experts believe that the value of supply of hotel rooms determining the rate of GST on restaurant should be removed. The restaurant within the hotels should be allowed voluntarily choose their GST rate between 5% and 18%. It is also suggested that Restaurant in the accredited 4 star and 5 Star category or above hotels may be compulsory be charged at 18% GST. The experts also suggest that the monetary limits that has been 7500/- since years may be increased to at least 10,000/-. Presently the restaurant within the hotel premises face challenge to cop up the the GST rate increase. Bhavya Popat, Editor, Tax Today.
