Changes in GST rates for hotels and restaurants in year 2025!

The hospitality industry plays a crucial role in shaping the economic landscape, and any changes in tax policies have a direct impact on its growth and operations. As we step into 2025, significant updates in Goods and Services Tax (GST) rates for hotels and restaurants have been introduced, sparking discussions across the industry. 

One of the key changes proposed in the 55th GST Council meeting is the omission of the “declared tariff” definition and a shift towards linking GST rates for accommodation and restaurant services to the actual value of supply.

Let’s understand the changes!

Proposed changes in 55^th GST Council Meeting dated 21^st December, 2024

“To omit the definition of “declared tariff” and suitably amend the definition of specified premises (from the services rate and exemption notifications) to link it with the actual value of supply of any unit of accommodation provided by the hotel and to make the rate of GST applicable on restaurant services in such hotels, for a given financial year, dependent upon the ‘value of supply’ of units of accommodation made in the preceding financial year, i.e. 18% with ITC if the ‘value of supply’ exceeded Rs. 7,500 for any unit of accommodation in the preceding financial year, and 5% without ITC otherwise. 

Further, to give the option to pay tax on restaurant service in hotels at the rate of 18% with ITC, if the hotel so chooses, by giving a declaration to that effect on or before the beginning of the financial year or on obtaining registration. The above changes are to be made effective from 01.04.2025 to avoid any transition difficulties.”

Understanding the change

• Before this proposed amendment, restaurant services are chargeable to GST as follows:

‍

• What is the proposed change:

For deciding the GST rate on restaurant service in hotel premises, currently, “declared tariff” is the key term. "Declared tariff" means charges for all amenities provided in the unit of accommodation (given on rent for stay) like furniture, air conditioner, refrigerators or any other amenities, but without excluding any discount offered on the published charges for such unit.  It is proposed that the “declared tariff” concept will be omitted. The GST rate will be decided on the basis of the actual tariff charged in the preceding financial year.

Also, restaurants with 5% GST will be given the option to pay 18% GST with ITC. For this, they have to give a declaration at the time of registration or before the beginning of new Financial Year.

These changes will be applicable from 01^st April 2025.

Conclusion

The 55th GST Council's proposed changes for hotels and restaurants, effective from April 1, 2025, link GST rates to the actual value of accommodation services, replacing the "declared tariff" concept. Restaurants in hotels will face 5% GST without ITC or can opt for 18% with ITC, depending on the accommodation tariff. Businesses must declare their choice at the start of the financial year. These adjustments aim to streamline taxation and offer flexibility for the hospitality sector.

‍