New GST Rates for Hotels and Restaurants in 2025: Everything You Need to Know

The GST Council, at its 55th meeting on December 21, 2024, introduced significant changes to the tax structure for the hospitality sector, effective April 1, 2025. These changes aim to simplify the tax regime for hotels and restaurants while providing greater flexibility for service providers.

Important Changes

• Eliminating the "Declared Tariff" Concept: The GST Council has removed the concept of "declared tariff," which was based on pre-discounted prices. The new system aligns taxes with the actual value of services rendered.
• Connecting to Real Room Tariffs: GST rates for hotel restaurant services will now link to the actual room tariffs of the preceding fiscal year:
  • 18% GST with Input Tax Credit (ITC) for rooms priced above ₹7,500 per night.
  • 5% GST without ITC for rooms priced at ₹7,500 or less per night.
• Choice of GST Rate for Hotels: Hotels can now opt for an 18% GST rate with ITC on restaurant services, irrespective of room tariffs, by making a declaration during registration or at the start of the fiscal year.

Consequences for the Hotel Sector

• Greater Flexibility: Hotels can choose the GST structure that aligns with their business strategy to optimize pricing and tax benefits.
• Operational Changes: Accounting and billing systems must adapt to the new GST regime, reflecting actual room tariffs instead of declared tariffs.
• Impact on Customers: Guests may experience changes in pricing strategies, influencing the overall cost of dining at hotel restaurants.

In Conclusion

The GST Council’s reforms reflect its commitment to a transparent and flexible tax framework for the hospitality sector. By linking tax rates to actual room tariffs and providing a choice of GST structures, the Council aims to simplify compliance while supporting businesses. Stakeholders should prepare for the April 1, 2025 implementation by updating their systems and training their teams for a smooth transition.

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