Starting April 1, 2025, dining at luxury hotels with room rates exceeding Rs 7,500 per night will become more expensive. The Central Board of Indirect Taxes & Customs (CBIC) has announced that restaurants within such hotels—now categorized as ‘specified premises’—will be subject to an 18% Goods and Services Tax (GST). This move aligns the taxation of food bills with hotel room charges, ensuring that tax is levied based on the actual amount paid rather than an estimated or declared tariff.

Understanding the New GST Rule

The new rule changes how restaurant services are taxed within premium hotels. Previously, GST on food bills in hotel restaurants was based on the ‘declared tariff’—a system where the hotel’s advertised rate determined the tax classification. Now, taxation will be based on the ‘value of supply,’ meaning the actual price paid by customers.

Under the new regulation:

• Restaurants in specified premises (hotels where at least one room costs more than Rs 7,500 per night) must charge 18% GST on food bills.
• These restaurants, however, can claim Input Tax Credit (ITC), reducing their overall tax burden.
• Hotels with no room exceeding Rs 7,500 per night will continue to charge 5% GST on food but without ITC benefits.

What This Means for Consumers

For customers, the change is straightforward:

• If you dine in a luxury hotel where rooms exceed Rs 7,500 per night, you’ll pay 18% GST on your food bill.
• If you dine in a mid-range or budget hotel, where no room surpasses this threshold, the GST on food remains 5%.

Example Scenarios:

• You book a dinner at a five-star hotel where rooms cost Rs 8,000 per night. Your food bill of Rs 5,000 will now include 18% GST (Rs 900), making the total Rs 5,900.
• You dine at a mid-tier hotel where the highest room rate is Rs 6,500 per night. Your Rs 5,000 bill will have 5% GST (Rs 250), making the total Rs 5,250.

This move is expected to increase dining costs at premium hotels while keeping mid-range hotel restaurant prices stable.

The ‘Specified Premises’ Classification Explained

Hotels will now be classified as ‘specified premises’ based on the actual price paid for rooms, rather than pre-declared tariffs. A hotel will be considered a ‘specified premises’ if:

1. Any of its rooms cost more than Rs 7,500 per night during the previous financial year.
2. It voluntarily declares itself as a ‘specified premises’ before March 31.
3. It is newly registered and submits this declaration within 15 days of registration.

Once a hotel enters the specified premises category, it will remain classified as such until it opts out. There’s no requirement for annual reclassification.

GST on Hotels: How It Has Evolved

Before this change, restaurant services in hotels followed a uniform 5% GST regime, regardless of the hotel’s room rates. This meant that a luxury hotel and a budget hotel charged the same GST rate on food, despite significant differences in room pricing and clientele.

The shift to an 18% GST rate with ITC follows previous changes in hotel taxation:

• Pre-GST era: Different state VAT and service tax structures led to varied rates for hotel dining.
• 2017 GST implementation: 5% GST on restaurant services without ITC, leading to uniform pricing across hotel categories.
• April 2025 update: Differentiated GST rates for restaurant services in luxury hotels versus mid-range hotels, aligning with the taxation model for hotel rooms.

Impact of the GST Change

For Consumers:

• Luxury hotel dining will become more expensive, with an 18% GST added to bills.
• Mid-range and budget hotels will continue at 5% GST, keeping their dining costs lower.
• Greater clarity and consistency in taxation, as food bills will now be taxed similarly to hotel rooms.

For Hotels and Restaurants:

• Luxury hotels will be able to claim ITC, reducing their overall tax liability and improving business efficiency.
• Mid-range and budget hotels may maintain lower food prices but won’t have ITC benefits, potentially increasing operational costs.
• Newly opening high-end hotels must declare themselves as specified premises in advance if they plan to set room rates above Rs 7,500 per night.

For the Government:

• Increased GST revenue from high-end dining establishments.
• Reduced tax avoidance by hotels that previously manipulated declared tariffs to optimize taxation.
• Harmonization of tax rates across hotel room and restaurant services.

Final Thoughts

The decision to impose an 18% GST rate on dining at premium hotels reflects the government’s broader strategy to streamline GST structures and eliminate disparities in tax treatment. While this will raise dining costs at luxury hotels, it ensures that taxation aligns with actual spending rather than declared tariffs. As businesses adapt to this change, consumers should be mindful of where they dine—the difference in GST rates may influence dining choices between luxury and mid-range hotels.

For travelers and diners, this is a significant shift in taxation that could reshape hospitality pricing strategies and consumer spending habits in the high-end restaurant sector.