18% GST now applies to meals at ‘specified’ hotels — check before you dine

Effective 1 April 2025, hotels classified as 'specified premises' began implementing an 18% Goods and Services Tax (GST) on meals served by their in-house restaurants. This change marks a shift from the previous 5% GST rate and is applicable to hotels offering accommodation services with room rates exceeding Rs 7,500 per day. Consumers dining at these restaurants will experience increased meal costs due to this adjustment. However, hotels not classified as 'specified premises' have the choice to continue with the 5% GST or switch to the 18% rate, as per directives from the government.

The government circular of 27 March 2025, defines 'specified premises' as locations where the supplier provided hotel accommodation at rates above Rs 7,500 per unit per day in the prior financial year. Additionally, hotels can acquire this designation by submitting a declaration from 1 January to 31 March before the new financial year. Newly registering hotels must declare their status within 15 days of registration. This declaration allows restaurants within these hotels to avail of input tax credit, potentially balancing the increased GST rate for consumers. "According to a circular dated March 27, 2025, here’s what the government said: With effect from April 1, 2025, 'Specified premises,' for a financial year, means:"

The increase in GST to 18% from the previous 5% enables restaurants to benefit from input tax credits, which may alleviate some of the cost burdens on consumers. This provision could be particularly advantageous for hotels as they strategise their pricing structures to mitigate consumer impact. Increased GST also affects the cost of events such as business meetings and conferences held at these restaurant venues, potentially increasing overall expenses for organisers.

Hotels must carefully consider their room pricing strategies, as setting tariffs above the Rs 7,500 threshold affects their classification and the GST rate applied to their restaurant services. This means even a single unit priced above Rs 7,500 in the previous year can result in the entire restaurant service being subjected to the higher GST rate. This change necessitates a strategic approach to pricing to manage the overall financial impact on both hotel operations and consumer costs.

Previously, restaurants had the option to charge a lower 5% GST without availing input tax credit. However, by opting into the new 18% GST regime, hotels can potentially leverage input tax credits to offset higher consumer charges.

Here is how this change may affect customers:

Elevated dining expenses: Patrons dining at restaurants situated in these establishments will now incur an 18% GST charge instead of the previous 5% rate.
Escalated event expenditures: Business functions, meetings, or events held at these venues will see a rise in costs due to the higher GST rate.
Enhanced pricing strategy clarity: Hotels can now strategize their room tariffs more efficiently as any unit priced above Rs 7,500 in the preceding year may influence the applicable GST rate for their restaurant services in the current year.