Starting April 1, 2025, the taxation of restaurant services in luxury hotels will undergo a key modification. While restaurants in high-end hotels have been subject to an 18% Goods and Services Tax (GST) since November 2017, the criteria for determining which hotels fall under this category is changing. The Central Board of Indirect Taxes & Customs (CBIC) has updated the rule to base GST classification on the actual room rate charged rather than the declared (rack) rate.

What’s Changing?

Previously, restaurants in hotels where the declared (rack) rate of at least one room exceeded Rs 7,500 per night were required to charge 18% GST on food bills, regardless of whether guests actually paid that amount for the room. Under the new regulation:

  • A hotel’s restaurant will charge 18% GST only if the actual price charged for any room exceeds Rs 7,500 per night.
  • If all rooms in a hotel are priced below Rs 7,500 per night in practice (even if the declared rate is higher), the restaurant will charge 5% GST without Input Tax Credit (ITC).

This update eliminates ambiguity by ensuring GST is applied based on the actual transaction value rather than advertised tariffs.

How This Affects Consumers

For diners, the fundamental GST rate structure remains unchanged, but the new rule provides greater clarity:

  • If a hotel actually charges more than Rs 7,500 per night for a room, the restaurant must impose 18% GST on food bills.
  • If no room in the hotel exceeds this threshold in real pricing, the restaurant will continue charging 5% GST.

Example Scenarios:

  • A luxury hotel previously had a declared tariff of Rs 8,000 per night but often offered rooms at discounted rates below Rs 7,500. Under the old rule, its restaurant still had to charge 18% GST. With the updated rule, if rooms are actually booked below Rs 7,500, the restaurant will now charge 5% GST instead.
  • A high-end hotel consistently sells rooms at Rs 7,600 per night. Its restaurant will continue charging 18% GST on food bills.

Impact on Hotels and Restaurants

  • Greater flexibility: Hotels that offer discounts on room rates below Rs 7,500 can now charge a lower GST rate on dining services.
  • Operational clarity: Restaurants will no longer be taxed based on arbitrary declared tariffs but rather on real transaction values.
  • Input Tax Credit (ITC) Benefits: Hotels falling under the 18% GST category will still be eligible for ITC, helping offset tax burdens.

Government’s Perspective

The revision aligns GST with actual pricing, reducing disputes over classification and bringing more consistency in tax collection. The change is expected to prevent hotels from being unnecessarily taxed at a higher rate if they do not actually charge premium room rates.

Final Thoughts

While the 18% GST rate itself remains unchanged for luxury hotels, the key shift is in how hotels qualify for this rate—now based on real pricing rather than declared tariffs. This move provides greater clarity and flexibility for both hotels and diners, potentially influencing pricing strategies in the hospitality industry.