Hotel and restaurant GST from 22 September 2025: 5% or 18%, and the 'specified premises' catch

The hardest thing to explain about what changed for hotels on 22 September 2025 is this: the rate came down, yet many hotels are now paying more tax.

That is not a contradiction. It is worth understanding properly.

# Room rates — what changed

Notification 15/2025-Central Tax (Rate).

On the face of it, 12% down to 5% reads as good news. But the credit went entirely.

# The ₹7,500 test — the most misunderstood part

The test is not on declared tariff. It is on value of supply — the amount you actually charged.

That change took effect on 1 April 2025.

In practice:

# "Specified premises" — where the restaurant rate is decided

This concept causes the most confusion, so read it carefully.

A hotel becomes specified premises if either condition is met:

1. Any unit was supplied above ₹7,500 per day in the preceding financial year, OR
2. The registered person has filed a voluntary declaration for that status

Declaration windows:

Miss the window and the status cannot be changed for that year.

# And now the part that looks contradictory

Which means the same hotel can have rooms at 5% and a restaurant at 18%.

How? Suppose you let one suite at ₹9,000 during a single wedding season last year. That alone makes the property specified premises this year. Now all your rooms this year are selling at ₹5,000 (5%), but your restaurant is at 18%.

# Choosing specified premises status is not only about rate

18% on the restaurant looks expensive — but it comes with ITC: kitchen equipment, raw material, a share of rent, staff services.

A 5% restaurant has a lower rate and no credit at all.

# Booking before, stay after — which rate

This came up for bookings around 22 September.

The answer sits in the time of supply rules; Section 14 contains specific provisions for rate changes. Broadly, the earlier of the invoice date and the payment date is relevant.

# A 5% room is not "exempt" — and it matters

One technical point worth stating clearly, because it feeds directly into your credit computation.

A 5%-without-ITC supply is a taxable supply. The credit restriction comes from a condition inside the rate notification, not from the supply being exempt.

This matters because the whole of Rule 42 — E and F — is built on exempt supplies. For a mixed-rate hotel, the question becomes which route the common credit treatment travels by.

# What to do today

1. Pull last FY's records — did any unit cross ₹7,500 on any day? That decides this year's restaurant rate
2. Check the billing software — is it deciding rate from declared tariff or actual value?
3. Compute input GST ÷ room revenue — above 7% means the 5% regime is costing you
4. Work out the restaurant's input cost ratio — 18% with ITC versus 5% without
5. Diarise the 1 Jan – 31 Mar declaration window — and start thinking about it in December
6. If mixed-rate, settle the credit treatment with your CA in writing

Written by

Prabhakar Kumar

Chartered Accountant (ICAI, Nov 2019)

Founder of VittSphere Technologies. Practicing CA serving 200+ MSME clients across Pune. 86% win-rate at AO and CIT(A) level tax appeals. Writes on Indian taxation, capital gains, and personal finance.