A recent advisory of Central Board of Indirect Taxes and Custom (CBIC) on the range of Goods and Services Tax (GST) rates on restaurant services that are in hotels has brought a considerable change for those hotels with room rent of more than ₹7,500 per day. Per the rule, if it is within these tourist oriented high end 18% GST on hotels the restaurant services.
This is a big announcement for the hospitality sector that has been looking for stronger clarity on how GST rates do apply to services within hotels. CBIC notification speaks about the levy of GST on restaurant services being provided under “specified premises” which includes hotels having room rent () of more than ₹7,500/-per day.
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All restaurant services (regardless whether it is availed by hotel or external customers) done within these armchairs will attract an 18% GST. This common rate is supposed to make the tax simple (Simple), and ensure that rates gained in respect of GST do apply to the hospitality industry the same way. This issuance also has the implications on when restaurants within these ‘specified premises will use Input Tax Credit (ITC) For restaurants. Restaurants will be allowed to get ITC on services like raw material and other operational costs they have paid GST on. The provision is considered to reduce the taxation of restaurants which will create free competition.
The definition of “specified premises” as room rent by the CBIC is in line with the intent of government to focus on high-end hotels and make sure they part with their fair share of the tax revenue.
₹7,500 per day threshold is perceived to be the luxury standard where in typically, customers would expect to pay a little more out of their pocket as this is what they are paying for. This is going to affect pricing strategies of restaurants that operate from these high end hotels, as announced in the notification. While the move will mean that hotels will now have to reprice their menu items to account for an 18% GST, it is anticipated this will mean cost of dining for diners rises.
This clarification issued by the CBIC is to open a new chapter in hotel service taxation, and make it more transparent and uniform. This is going to make GST easily compliant for enterprises and give balanced situation to all in the hospitality space.
