Starting April 2025, hotels categorized as ‘specified premises’ are required to impose an 18% Goods and Services Tax (GST) on meals served by their in-house restaurants, a significant increase from the previous 5% GST rate. This change applies to hotels offering accommodation services with room rates exceeding INR 7,500 per day in the prior financial year. While this adjustment raises dining costs for patrons, it also introduces input tax credit benefits for the hotels, potentially balancing the financial impact on consumers.
According to the government’s circular issued on March 27, 2025, ‘specified premises’ are defined as establishments where at least one accommodation unit was priced above INR 7,500 per night during the preceding financial year. Hotels must declare their status as specified premises between January and March annually to maintain compliance. Newly registering hotels must submit their declaration within 15 days of registration. This classification grants these hotels the ability to leverage input tax credits for their restaurants, enabling them to offset the higher GST charges.
For restaurants outside these specified premises, the GST rate remains at 5%, preserving a more affordable option for diners. However, the availability of input tax credits under the 18% regime may incentivize some hotels to opt for the higher GST rate, despite the potential cost implications for customers.
The new tax framework significantly impacts not only casual dining but also the cost structure of business events, conferences, and social gatherings held at these venues. Organizers and guests will likely face increased expenses due to the elevated GST rate on food and beverage services.
For hotels, this policy shift necessitates a strategic reassessment of room pricing. Even a single room priced above the ₹7,500 threshold can result in the hotel being classified as specified premises, thereby subjecting all its restaurant services to the 18% GST rate. As a result, hotels must carefully evaluate their pricing strategies to balance revenue goals with the potential financial implications for guests.
The introduction of input tax credits under the 18% GST regime offers an opportunity for specified hotels to optimize their cost structures. By offsetting GST expenses against eligible input costs, hotels can potentially reduce the financial burden on consumers, making the dining experience more appealing despite the higher tax rate.
Source: Business Today
