The 55th GST Council meeting, held on December 21, 2024, in Jaisalmer, Rajasthan, has introduced major tax changes for India’s hospitality sector. The revised GST rates and compliance norms, effective from April 1, 2025, are aimed at simplifying tax structures, improving transparency, and boosting competitiveness for hotels and restaurants.
Key Highlights
- Effective date: April 1, 2025
- Accommodation up to ₹7,500/night: 5% GST (without Input Tax Credit – ITC)
- Accommodation above ₹7,500/night: 18% GST (with ITC)
- Restaurant services in hotels: 5% GST if no rooms exceed ₹7,500/night; 18% GST (with ITC) if any room exceeds this price.
- Mandatory annual declaration for “Specified Premises” status by March 31 each year.
- Removal of ‘Declared Tariff’ definition, making GST applicable on the actual transaction value.
Council Meeting Overview
Chaired by Union Finance Minister Nirmala Sitharaman, the meeting was attended by state finance ministers from across the country, including Goa and Haryana. While the agenda covered multiple industries, hospitality was a focal point — with discussions on GST rate rationalisation, compliance simplification, and sector-specific challenges.
Why It Matters for Hotels & Restaurants
The hospitality sector is one of the biggest beneficiaries — and also the most impacted — by these changes. Hotels will now be taxed based on the actual value of accommodation, replacing the earlier “declared tariff” system. This move is expected to reduce ambiguity for both businesses and guests.
Hotels charging above ₹7,500 per night will attract 18% GST with ITC benefits, while those priced at or below ₹7,500 will pay a flat 5% without ITC. Restaurants in hotels will be taxed according to the highest room rate charged during the previous financial year.
Specified Premises & Compliance
The Council introduced the concept of “Specified Premises” to clearly determine applicable tax rates. Registered businesses must declare their premises under this category by March 31 each year to continue availing relevant GST benefits.
New annexures — VII, VIII, and IX — detail classification procedures, documentation requirements, and compliance formats.
Impact on the Food Service Industry
For standalone restaurants, a 5% GST rate without ITC will apply. However, restaurants within hotels will need to comply with the accommodation-linked rate rule. This distinction is expected to encourage competitive pricing strategies and clearer billing.
Additional GST Decisions
The Council also made recommendations beyond hospitality, including:
- GST on fortified rice kernels reduced from 18% to 5%
- GST on ACC blocks (over 50% fly ash) reduced from 18% to 12%
- GST on used cars, including EVs, increased from 12% to 18%
- Exemptions for contributions to the Motor Vehicle Accident Fund
- GST exemptions on gene therapy and certain life-saving drugs
- Reverse Charge Mechanism for select small service providers
- Clarification on taxability of vouchers
Challenges Ahead
While the reforms promise clarity, initial confusion is likely as businesses transition. Key challenges include:
- Adjusting pricing models to value-based GST
- Understanding new declaration and registration requirements
- Training staff on compliance to avoid penalties
Looking Forward
The Council also announced upcoming measures, including a reduced pre-deposit for GST appeals (down to 10% from April 1, 2025), the introduction of an Invoice Management System to reduce disputes, and enhanced traceability for certain commodities.
Bottom Line
The GST overhaul is poised to transform India’s hospitality sector, bringing both opportunities and short-term adaptation hurdles. For hotels and restaurants, success will depend on swift compliance, transparent pricing, and strategic use of the new tax flexibility.