I. Introduction
The Ministry of Finance, through Notification No. 05/2025-Central Tax (Rate), has introduced significant amendments to the GST rate structure for hotel accommodation and restaurant services, effective April 1, 2025. These amendments eliminate the concept of “declared tariff”, redefine “specified premises”, and introduce a structured opt-in mechanism for hotels to choose a higher GST rate with Input Tax Credit (ITC) benefits.
These changes are expected to streamline tax administration, enhance compliance, and provide greater clarity for taxpayers in the hospitality sector.
II. Key Amendments and Their Impact
1. Omission of “Declared Tariff” Definition
The notification removes the term “declared tariff”, which was previously used to determine the applicable GST rate on hotel accommodation. Instead, the rate will now be determined based on the actual value of supply, providing a more objective and transparent tax structure.
2. Revised Definition of “Specified Premises”
The amendment redefines “specified premises” for a given financial year, linking it to the actual value of hotel accommodation services supplied in the previous financial year. The new definition includes:
Any hotel premises where the value of any unit of accommodation exceeded ₹7,500 per unit per day in the preceding financial year.
A premises declared as “specified” by a registered person through an opt-in declaration filed between January 1 and March 31 of the preceding financial year.
A premises declared as “specified” by a new applicant within 15 days of obtaining acknowledgment for GST registration.
This revision aligns the classification criteria with actual revenue figures, preventing subjective interpretations.
3. GST Rate Structure for Restaurant Services in Hotels
The revised GST rates for restaurant services in hotels are as follows:
| Hotel Category (Based on Room Tariff in Previous FY) | GST Rate with ITC | GST Rate without ITC |
|---|---|---|
| Room tariff exceeds ₹7,500 per day | 18% | 5% |
| Room tariff ≤ ₹7,500 per day | 5% | 5% |
Hotels classified as “specified premises” (tariff exceeding ₹7,500 per unit per day) will be subject to 18% GST with ITC or 5% without ITC.
Hotels below the ₹7,500 threshold will continue with 5% GST (without ITC).
This amendment introduces greater predictability in tax rates and removes anomalies related to the earlier declared tariff concept.
4. Opt-In Mechanism for Higher GST with ITC
Hotels can voluntarily opt for the 18% GST rate with ITC for restaurant services, subject to the following conditions:
The declaration must be submitted before the start of the financial year or within 15 days of GST registration for new applicants.
The election remains applicable for the entire financial year and continues until an opt-out declaration is filed.
Separate declarations are required for each hotel premises.
This provision enables businesses to make strategic tax planning decisions, choosing between a lower tax rate with no ITC or a higher tax rate with ITC benefits.
5. Compliance Requirements and Timelines
The amendments introduce three annexures for compliance:
| Declaration Type | Purpose | Deadline |
| Annexure VII – Opt-In Declaration (Registered Hotels) | Opting for “specified premises” status | January 1 – March 31 (preceding FY) |
| Annexure VIII – Opt-In Declaration (New Registrations) | Declaring “specified premises” status at the time of GST registration | Within 15 days of acknowledgment |
| Annexure IX – Opt-Out Declaration | Declaring premises as not a “specified premises” | January 1 – March 31 (preceding FY) |
Failure to file the necessary declarations within the prescribed timelines may lead to unintended classification and higher tax liabilities.
III. Strategic Advisory for Hotels and Restaurant Operators
1. Impact Assessment for Hoteliers
High-end hotels (Tariff > ₹7,500 per unit per day) should evaluate whether opting for 18% GST with ITC is beneficial compared to 5% without ITC.
Hotels close to the ₹7,500 threshold must monitor revenue trends to assess potential classification changes in the next financial year.
Regular assessment of hotel occupancy, pricing strategy, and revenue forecasting is essential for optimal tax planning.
2. Restaurant Businesses within Hotels
Hotels offering restaurant services should analyze ITC benefits on input costs (e.g., food supplies, operational expenses) and compare them against a lower tax rate without ITC.
Restaurants operating within non-specified premises will continue to attract 5% GST without ITC, minimizing compliance complexities.
Hotels should educate customers on applicable GST rates to prevent disputes or confusion in billing.
3. Compliance Checklist for Hotel and Restaurant Operators
✅ Review Previous Year’s Room Tariff Data – Identify if any unit exceeded ₹7,500 per day. ✅ Evaluate ITC Utilization – Assess potential savings under 18% GST with ITC. ✅ Timely File Opt-In/Opt-Out Declarations – Ensure compliance with Annexures VII, VIII, and IX. ✅ Update GST Invoices and POS Systems – Reflect revised tax rates in billing software. ✅ Customer Communication – Inform guests about GST implications for transparency.
IV. Conclusion and Way Forward
The 2025 GST amendments bring much-needed clarity and structural reforms to the hospitality sector’s tax regime. By eliminating the declared tariff ambiguity, introducing a revenue-based classification, and allowing voluntary opt-ins for ITC benefits, these changes are poised to enhance transparency and compliance.
Key Takeaways:
Hotels must proactively assess their classification and file opt-in/opt-out declarations in a timely manner.
The ability to choose between 18% GST with ITC and 5% GST without ITC empowers businesses with flexible tax planning options.
Strict compliance with declaration timelines and proper documentation will be critical to avoid disputes and penalties.
By adopting a proactive approach to tax strategy and compliance, hotel operators can leverage these changes for better financial management, ensuring tax efficiency while maintaining regulatory adherence.
