Dining at Hotels to Get Costlier: GST on Restaurant Services Now 18% for Premium Properties

 

Starting April 1, 2025, a new GST rule is set to change the way restaurants inside hotels charge tax on food and beverage bills. If you’re dining at a hotel where the room tariff exceeds ₹7,500 per night (even just one room in the previous financial year), expect to pay 18% GST on your meal instead of the earlier 5%.

This rule comes into effect as per Notification No. 05/2025-CT (Rate) issued on April 1, 2025. These hotels are now considered “specified premises,” and restaurants operating within them are obligated to charge 18% GST. On the upside, these restaurants can now claim Input Tax Credit (ITC), which can be used to offset their tax burden on inputs like ingredients, rentals, or other services.

However, not all hotel-based restaurants fall into this category. If a hotel did not charge more than ₹7,500 per night for any room in the previous financial year, it’s considered a non-specified premises. Restaurants in such hotels have two options. They can either continue with the 5% GST rate (but without claiming ITC) or voluntarily opt to charge 18% GST with ITC benefits.

Hotels choosing the 18% route must make a formal declaration of their status. This declaration should be made before March 31 for existing hotels, while newly registered hotels have a 15-day window from their registration date to declare their status.

Once a hotel is classified as a "specified premises," it remains in that category unless it formally opts out. There’s no requirement to reclassify each year, simplifying compliance but locking in the GST structure unless changed deliberately.

For the average diner, this shift could lead to a higher food bill at premium hotels. However, restaurants may tweak their pricing strategies to absorb some of the impact, especially since they can now claim ITC to reduce overall tax outgo. Budget hotels and mid-range properties, which are not classified as “specified,” will still offer food services at the 5% GST rate, making them a more cost-effective option for dining out.

This move by the GST Council is aimed at aligning tax benefits like ITC with higher tax compliance and better reporting standards. While diners might see an uptick in bills, hotels with efficient tax credit usage could minimize the actual financial burden on customers.