GST Overhaul for Hotel Restaurants: Declared Tariff Out, Actual Charges In

The GST landscape for restaurant services located in hotels and similar establishments has undergone a significant shift with effect from 1st April 2025. The Central Board of Indirect Taxes and Customs (CBIC) has replaced the earlier "declared tariff" mechanism with a more practical, actual charges-based approach, aimed at reducing disputes and improving clarity.

If you operate a restaurant within a hotel, are a hotelier, or manage a third-party restaurant inside such premises, these changes impact your tax rate, ITC entitlement, and compliance obligations.

Pre-2025 Framework: Declared Tariff Confusion

Until 1st April 2025, the GST rate on restaurant services within hotels was determined based on the declared room tariff-not the actual price paid by the guest. This approach created considerable administrative and legal challenges, especially given the highly dynamic nature of hotel pricing.

Illustrative Example:

A hotel-say The Bayview Retreat-had rooms with a declared tariff of Rs.7,200 on 1st April 2024. Accordingly, it charged 5% GST (without ITC) on all restaurant sales during FY 2024–25.

However, on 30th March 2025, it sold a room at Rs.8,100 due to a surge in demand during a holiday weekend. That one instance pushed its declared tariff above Rs.7,500. As a result, all restaurant sales made throughout the entire financial year became taxable at 18% with ITC, retroactively.

The problem? The hotel can’t recover the extra 13% GST from customers who dined months ago. The ITC benefit doesn’t fully compensate, and the compliance burden falls entirely on the hotel.

Varying Prices, Multiple Tariffs

Adding to the complexity was the inconsistent pricing across platforms. A single room could have different declared tariffs on:

• The hotel’s own website

• OTAs like MakeMyTrip or Booking.com

• Travel agents or offline bookings

• Last-minute or seasonal price hikes

For instance, while the hotel might display Rs.7,200 on its own site, the same room could be offered at Rs.7,800 on an OTA during a festival. This raised a serious question: Which one counts as the "declared tariff"?

Summary of Issues with Declared Tariff

• Retroactive GST liability from a single instance of higher pricing

• Difficulty in identifying the correct declared tariff among multiple platforms

• High administrative burden in tracking tariffs all year

• Tax risk and potential litigation

• Financial loss due to unrecoverable tax from past restaurant customers

All of this highlighted the impracticality of using declared tariff as a tax trigger. These persistent problems led to a shift in policy, with the 55th GST Council meeting recommending a new regime- based on actual value of supply-effective 1st April 2025.

Post-2025 Regime (w.e.f. 01.04.2025): GST on Restaurant Services Linked to Actual Room Rates

The 55th GST Council meeting introduced important changes in the GST treatment of restaurant services provided within hotels. The Council recommended:

• Omitting the definition of "declared tariff", and

• Amending the definition of "specified premises" to base it on the actual value of room accommodation supplied in the preceding financial year.

These changes aim to eliminate disputes and confusion that previously arose due to reliance on declared tariffs.

Official Amendments: Notifications & Definition

1.Notification No. 05/2025-Central Tax (Rate), dated 16.01.2025 This amended Notification No. 11/2017 – Central Tax (Rate) by:

• Removing the clause defining "declared tariff."

• Substituting a new definition of "specified premises" (effective from 01.04.2025) as follows:

"Specified premises", for a financial year, means-

(a) a premises from where the supplier has provided in the preceding financial year, "hotel accommodation" service having the value of supply of any unit of accommodation above Rs.7,500 per unit per day or equivalent; or

(b) a premises for which a registered person supplying "hotel accommodation" service has filed a declaration, on or after 1st January and not later than 31st March of the preceding financial year, declaring the said premises to be it a specified premises; or

(c) a premises for which a person applying for registration has filed a declaration, within 15 days of obtaining acknowledgement for the registration application, declaring the said premises to be a specified premises."

2. Notification No. 08/2025-Central Tax (Rate), dated 16.01.2025

This aligns the definition of specified premises in Notification No. 17/2017 – Central Tax (Rate) (which deals with reverse charge on ECOs) with the revised definition in Notification No. 11/2017.

This change is also effective from 01.04.2025.

What Do These Changes Mean?

☑ Classification Now Based on Actual Room Sales, Not Declared Tariff

Hotels will now be classified as specified premises based on actual transaction values in the preceding financial year-not declared tariffs.

New Criteria (Effective 01.04.2025):

• Mandatory Classification:

A hotel will be treated as a specified premises for the current financial year if it charged Rs.7,500 or more (per room, per day) for any accommodation unit at any time during the preceding financial year.

• Exclusion from Specified Premises:

If no room was sold at Rs.7,500 or above in the preceding financial year, the hotel will not be considered specified premises - unless it voluntarily opts in by filing the prescribed declaration.

GST Rate Table for Restaurants in Hotels (w.e.f. 01.04.2025)

Note: The criteria of "specified premises" applies regardless of whether the restaurant is independently operated (i.e., not owned by the hotel). As long as the restaurant is located within the hotel premises, the classification depends on the hotel's room supply value in the preceding financial year.

Practical Examples

Example 1: Mandatory Classification

Hotel X charged Rs.8,200 for a room in FY 2024–25.

➲ For FY 2025–26, all restaurant services within the hotel attract 18% GST with ITC, regardless of actual restaurant turnover.

Example 2: Optional Classification

Hotel Y’s highest room rate in FY 2025–26 was Rs.7,000.

➲ For FY 2026–27, restaurant services will be taxed at 5% without ITC.

➲ Hotel Y may opt-in by filing a declaration and charge 18% with ITC instead.

Declaration Process: Opting In or Out of Specified Premises Classification þ Who Must File Declarations?

Only hotels or accommodation service providers are eligible to file these declarations.

• No declaration required if classification is mandatory (i.e., room rate ≥ Rs.7,500).

• Declarations required for voluntary opt-in or opt-out.

Voluntary Opt-In

Hotels that didn’t cross the Rs.7,500 threshold may opt-in by:

• Filing Annexure VII between 1st January and 31st March of the preceding FY, or

• Filing Annexure VIII within 15 days of obtaining registration acknowledgment, if newly registered.

☞ Once opted-in, the status continues until the hotel files an opt-out declaration.

Opting Out

Hotels that had previously opted in to treat their in-house restaurant services as provided within Specified Premises can opt out by:

• Filing Annexure IX between 1st January and 31st March before the start of the new FY.

☠ The hotel will then apply 5% GST without ITC for restaurant services in the following FY.

☞ Hotels where the classification as "Specified Premises" applies mandatorily (i.e., without having opted in) are not eligible to opt out.

Important Points to Remember:

1) Fixed Status for the Financial Year:

Once a hotel opts in to be treated as a Specified Premises (or opts out later), that chosen status remains fixed for the entire financial year. Mid-year changes are not permitted.

This also applies to newly registered hotels, whose chosen status will apply for the rest of that year.

☞ Hotels where the classification as "Specified Premises" applies by default (i.e., mandatorily) are not governed by the opt-in/opt-out mechanism, so the concept of "fixed status" by declaration does not apply to them.

2) Filing Method for FY 2025–26:

Until an electronic system is enabled, declarations must be filed physically before the jurisdictional GST officer.

Declaration Timeline & Forms

Illustration 1: Voluntary Opt-In and later Opt-Out

Hotel A had no room above Rs.7,500 in FY 2025–26, but wishes to opt-in for FY 2026–27 to FY 2029–30.

➲ Files Annexure VII between Jan–Mar 2026.

Later, to opt-out from FY 2030–31 onwards, files Annexure IX between Jan–Mar 2030.

Illustration 2: New Business Registration – Opting In for Specified Premises

'A', an unregistered person, applies for GST registration on 2nd May 2025 and receives ARN the same day.

➲ Files Annexure VIII by 16th May 2025 to opt-in as a specified premises.

Important Note: Only a person supplying or intending to supply hotel accommodation services is eligible to file this declaration.

Illustration 3: Ineligible Declarant

A mall owner leasing out space (including to a hotel) cannot file the specified premises declaration since they do not supply hotel accommodation.

➲ Only the hotel operator (not mall owner) can declare specified premises status. This means restaurants inside the hotel will attract 18% GST with ITC.

☞ Restaurants located elsewhere in the mall, outside the hotel premises in the mall continue with 5% GST without ITC.

Specified Premises: What If There Are Multiple Locations Under One GSTIN?

When a hotel or accommodation service provider operates from more than one premises under a single GST registration, the declaration mechanism becomes location-specific.

Separate Declarations Required for Each Premises

The opt-in (Annexure VII) and opt-out (Annexure IX) declarations are premises-specific. This means:

• A separate declaration must be filed for each premises from where hotel accommodation services are supplied.

• You cannot file a single declaration for all locations under one GSTIN.

• The supplier must independently choose whether or not to treat each premises as a 'specified premises’.

Automatic Classification for High-Value Rooms

If any unit of accommodation in a particular premises was supplied at a value above Rs.7,500 in the preceding financial year, that premises is automatically treated as a 'specified premises' for the entire current financial year.

• No declaration is required in such cases.

• However, this automatic classification applies only to that particular premises, not to all premises under the same registration.

In Case of New Registrants

If you're applying for GST registration and intend to treat one or more of your premises as 'specified premises', you must file separate declarations (Annexure VIII) for each such premises within 15 days of obtaining the ARN.

What About Third-Party Restaurants Inside Hotels?

The GST framework also covers restaurants operated by third-party lessees within hotel premises:

• If such restaurants are located within specified premises (i.e., where hotel rooms are priced at Rs.7,500 or more in the preceding financial year), they automatically fall under the 18% GST slab with ITC - this is mandatory, not optional.

• The declaration, where applicable (in voluntary cases), must be filed by the hotel - not by the restaurant operator - even if the restaurant is run by a third party.

• Restaurants charging 18% GST are eligible to claim input tax credit on expenses like rent, consumables, electricity, etc.

This provision is especially beneficial for restaurant chains and food service brands leasing space inside premium hotel properties, as it ensures input tax credit availability and clarity on tax treatment.

Who Issues the Acknowledgment for the Declaration?

• After filing an opt-in or opt-out declaration (Annexure VII or IX), the jurisdictional GST officer issues a dated acknowledgment.

• Declarations must be filed before 31st March with the appropriate officer.

• The acknowledgment is based solely on the form’s completeness, without verifying eligibility or merits of the declaration.

Impact of Notification No. 08/2025 – CT (Rate) on E-Commerce Operators

• This notification changes the Reverse Charge Mechanism (RCM) liability for E-Commerce Operators (ECOs) under Section 9(5) of the CGST Act.

• Earlier, popular platforms like Zomato and Swiggy were required to collect and pay GST on restaurant services supplied through their portals under RCM. Now:

• For restaurants in specified premises (room rates above Rs.7,500), the restaurant must pay GST at 18% under forward charge, regardless of ECO involvement. ECOs continue to collect TCS but are no longer liable to pay GST on behalf of restaurants.

• For restaurants in non-specified premises, ECOs remain deemed suppliers and liable to pay GST under RCM on services supplied via their platforms.

• This clarifies GST responsibilities between restaurants and ECOs.

Stand-alone Restaurants (Outside Hotels)

Restaurants operating independently and outside any hotel premises (i.e., stand-alone establishments) are taxed at a flat GST rate of 5%, but without Input Tax Credit (ITC).

Compliance Checklist for FY 2026–27

Here’s a ready reckoner to help restaurant operators plan:

✓ Identify Your Premises

Determine if your hotel or accommodation premises qualify as ‘specified premises’ based on the value of supply in FY 2025–26.

✓ File Separate Declarations

Submit Annexure VII (opt-in) or Annexure IX (opt-out) declarations separately for each premises by 31st March 2026.

✓ New Registrants

If newly registered, file Annexure VIII declarations for each premises intended as specified premises within 15 days of ARN issuance.

✓ Verify Automatic Classification

Check if any room was supplied above Rs.7,500 in FY 2025–26; if yes, that premises is automatically ‘specified’ for FY 2026–27, with no declaration needed.

✓ Coordinate with Restaurant Operators

Ensure third-party restaurants inside specified premises are aware that 18% GST with ITC applies mandatorily.

✓ Maintain Documentation

Keep complete records of declarations, invoices, and correspondence with GST authorities.

✓ Invoice Compliance

Issue GST-compliant invoices reflecting correct rates (18% with ITC for specified premises restaurants; 5% without ITC elsewhere).

✓ Track Opt-Out/Reversion Deadlines

Monitor and comply with any deadlines for withdrawal of specified premises status during FY 2026–27.

✓ Review Impact of RCM Changes

For restaurants supplying via E-Commerce Operators, confirm GST liability and TCS collection rules under the updated framework.

GST Rates under New Scheme (from 01.04.2025)

Conclusion

With the removal of the declared tariff anomaly and introduction of a declaration-based model, the GST treatment of restaurant services in hotel premises has become more flexible yet transparent. Businesses now have a strategic choice-opt for simplicity or claim ITC and embrace structured compliance.

Careful planning for FY 2026–27 is essential. The new system rewards those who proactively declare and document their tax position.

Disclaimer: The information given in this article is solely for purpose of understanding the law. It is completely based on the interpretation of the author and cannot be constituted as a legal advise, the author of this article and Lawcrux team is not responsible for any legal issues if arises on the basis of the interpretation given above.