Overview of the New GST Change
Starting April 1, 2025, restaurants operating within certain hotel premises are required to levy 18% GST on food and beverage services. This is a significant change from the earlier 5% GST rate applicable in most cases. The new rule applies specifically to restaurants located in “specified premises”, as defined by the GST notification.
What Are Specified Premises Under GST?
Definition Based on Room Tariff
According to Notification No. 05/2025-CT (Rate) dated April 1, 2025, “specified premises” are hotels where the tariff for any room exceeded ₹7,500 per night during the previous financial year.
GST Implication for Restaurants in Specified Premises
Restaurants operating in such hotel properties must:
Charge 18% GST on all food and beverage bills
Are eligible for Input Tax Credit (ITC), which can reduce their overall tax liability
Voluntary Declaration Option
Hotels that meet the criteria must declare their status as ‘specified’ by March 31, to ensure compliance and claim ITC benefits.
Restaurants in Non-Specified Premises – What Are the Options?
Hotels where no room exceeds ₹7,500/night are considered non-specified premises. Restaurants in such hotels have two options:
Option 1 – 5% GST Without ITC
Continue charging 5% GST
Cannot claim Input Tax Credit
Option 2 – 18% GST With ITC
Voluntarily opt into the 18% GST structure
Claim ITC on eligible business expenses
Must declare their intent to opt-in
For Newly Registered Hotels
Declaration Timeline
Hotels that register for GST after April 1, 2025, must declare their status (specified or not) within 15 days of registration.
Fixed Status Until Opt-Out
Once declared, the status remains unchanged until voluntarily opted out—there is no need for annual reclassification.
Summary – GST Rate and ITC Availability
Comparison Table
| Hotel Type | GST Rate on Dining | Input Tax Credit (ITC) |
|---|---|---|
| Specified Premises | 18% | Yes |
| Non-Specified (Opted 18%) | 18% | Yes |
| Non-Specified (Default Option) | 5% | No |
Impact on Customers and Pricing
Dining in restaurants within premium hotels is now costlier, as the GST has increased to 18%. However, since these restaurants can claim ITC, many may adopt strategic pricing or bundle offers to minimize the effect on the final bill.
In budget and mid-range hotels, where the tariff is under ₹7,500 per room, 5% GST continues, offering a more affordable dining experience—but these restaurants cannot claim ITC.
Final Thoughts
The revision in GST rates is aimed at streamlining tax credit benefits while ensuring fair classification based on hotel pricing. While customers may feel a slight increase in dining costs in luxury hotels, the availability of ITC might help restaurants absorb some of the extra burden.