The impact of GST on hospitality sector in India has been transformative since the tax was introduced in 2017. As one of India’s largest service industries, the GST on hotel industry and GST on restaurants in India continues to evolve — most recently with sweeping reforms from the 56th GST Council Meeting, effective September 22, 2025. This updated guide reflects the latest GST rates, compliance rules, and strategic insights for hoteliers, restaurateurs, and tax professionals.
Why GST E-Invoicing Rules Have Changed in 2026
Before GST, the hospitality sector was subject to multiple indirect taxes, resulting in higher costs, complex compliance, and limited Input Tax Credit (ITC).
Here’s how the tax landscape has evolved.
The pre-GST era saw hotels pay five separate indirect taxes: Service Tax, Excise Duty, Value Added Tax (VAT), ITC Credit restrictions, and Luxury Tax. A room above ₹1,000/night attracted ~15% Service Tax (after 40% abatement).VAT ranged from 12–14.5%, with luxury tax imposed on top by individual states. Restaurants enjoyed 60% abatement — meaning effective service tax was ~6% on F&B. Input Tax Credit in hospitality sector was not available across state/central divide, causing cascading tax-on-tax burden. Compliance was complex with multiple due dates.
Today, this multi-layered chaos is history. The unified GST rates in India have replaced all of the above with a single, transparent structure. Let’s see exactly where things stand in 2026.
GST on Hotel Industry: Comparison old vs new current rate structure
The 56th GST Council Meeting (September 2025) brought the most significant overhaul of GST on hotel industry since the regime’s inception. The major change in the GST rate on hotels and its subsequent facilities is the removal of 12% GST rate category on many services and hotel room stays.
Here are the details of GST on hotel rooms:
| Room Tariff Per Night | Old GST Rate (Pre-Sept 2025) | New GST Rate (Effective 22 Sept 2025) | ITC Available? |
|---|---|---|---|
| Below ₹1,000 | 0% | 0% | No |
| ₹1,001 – ₹7,499 | 12% (with ITC) | 5% (without ITC) | No |
| ₹7,500 and above | 18% (with ITC) | 18% (with ITC) | Yes |
GST is now applied on the invoiced amount — not the declared/listed tariff.
Example: A room listed at ₹8,000 but discounted to ₹6,999 attracts 5% GST (not 18%).
This is a significant change from the previous rule where declared tariff determined the rate.
Hotels with mixed room categories (i.e., rooms taxable at both 5% without ITC and 18% with ITC) must perform monthly proportionate Input Tax Credit (ITC) calculations in accordance with Section 17 of the Central Goods and Services Tax (CGST) Act, 2017, read with Rules 42 and 43 of the CGST Rules, 2017.
GST on Restaurants in India: 2026 Framework
A restaurant becomes a ‘specified premises’ when it operates in a hotel where any room tariff exceeded ₹7,500 per night in the previous financial year. This classification determines its GST rate.
| Restaurant Type | GST Rate (2026) | ITC Available? |
|---|---|---|
| Standalone restaurant (AC or non-AC) | 5% | No |
| Takeaway / delivery (Swiggy, Zomato, etc.) | 5% | No |
| Restaurant in hotel (tariff below ₹7,500/night) | 5% | No |
| Restaurant in hotel (tariff ₹7,500+/night) — Specified Premises | 18% | Yes |
| Packaged products sold independently (GST depends on applicable HSN classification) | Varies by HSN | No |
| Aerated drinks / mocktails served in restaurant | 18% | No |
| Alcohol (state-regulated, outside GST) | State Excise Duty | N/A |
Input Tax Credit in Hospitality Sector: What’s Changed?
Hotels could avail ITC on inputs — a key benefit under the GST regime vs. the pre-GST era.
The industry was expected to pass cost savings to consumers via ITC efficiency.
The 2025 reforms have significantly altered how Input Tax Credit in hospitality sector works. It is now a two-track system:
| Scenario | ITC Status (2026) |
|---|---|
| Rooms ₹7,500+/night (18% GST) | Full ITC available on inputs, input services, and capital goods |
| Rooms below ₹7,500/night (5% GST) | No ITC – concessional 5% GST rate is without ITC |
| Specified premises restaurant (18% GST) | Full ITC available |
| All other restaurants (5% GST) | No ITC available |
| Spa, health club, and beauty services | 5% GST without Input Tax Credit (ITC), effective 22 September 2025 |
| Banquet halls / event services where the declared room tariff is (₹7,500) or more per day. | 18% GST — ITC available |
| Business traveller claiming ITC on hotel stay | ITC only if room is taxed at 18% + conditions met under Sec. 16 CGST |
Composite & Bundled Packages: How GST Applies
Modern hospitality offerings — stay + meals + spa + sightseeing — require understanding composite supply rules under GST. GST significantly influences the tax treatment of composite and bundled hospitality packages.
| Package Type | GST Treatment (2026) |
|---|---|
| Room + meals (bundled, room is principal) | GST applicable based on the room tariff slab |
| Room + catering/event (event is principal) | 18% GST (event determines the applicable rate) |
| Mixed supply (no natural link, e.g., stay + gym voucher) | Highest applicable GST rate among all components |
| Wedding package (hall + buffet + decoration) | 18% GST as a composite supply, where the event is the principal supply |
Benefits of GST on the Hospitality Sector: Then vs. Now
Since its implementation, GST has simplified the tax framework for hotels and restaurants, delivering lasting operational and financial benefits.
- The Replaced 5 separate taxes with a single unified GST.
- Enabled Input Tax Credit flow across the value chain.
- Simplified compliance — one return framework vs. multiple state/central filings.
- Greater pricing transparency for consumers.
- Mid-range hotels (₹1,001–₹7,499/night) see tax drop from 12% to 5% — major relief for budget travelers. ITC linked to room tariff bracket creates a clear, predictable framework for hotel finance teams.
- GST on invoiced amount (vs declared tariff) gives hoteliers pricing flexibility.
- Simplified restaurant rules: most eateries are under a uniform 5% — fewer classification disputes.
- Spa/wellness services streamlined at 5% — aligns with the lifestyle hospitality boom in India.
- Clearer composite supply guidance reduces litigation for hotel package operators.
Ongoing Challenges
The impact of GST on hospitality sector is not without friction. Key pain points for 2026:
- Hotels with mixed inventory (rooms both above and below ₹7,500) must compute proportionate ITC monthly — adding administrative burden.
- The ‘specified premises’ definition requires hotels to track the previous year’s room tariffs to determine restaurant GST rates — a compliance task that needs robust record-keeping.
- Alcohol remains outside GST on hotel industry, meaning state excise continues to apply differently across states — a compliance inconsistency.
- Small guesthouses and independent restaurants face GST registration thresholds and e-invoicing obligations that are still evolving.
Key Takeaways
The impact of GST on hospitality sector in India has been overwhelmingly positive, but it’s an evolving story. The GST rates in India for hotels and restaurants post-September 2025 mark a clear maturation of the regime — simpler slabs, tariff-linked ITC, and reduced burden for budget accommodations.
For the GST on hotel industry, the abolition of the 12% slab is the most consequential reform in years. For GST on restaurants in India, the standardisation at 5% (with the luxury exception for specified premises) brings welcome clarity. The critical task for businesses in 2026 is precise classification, robust record-keeping for ITC eligibility, and staying updated with GST Council notifications — because if history teaches us anything, the rules will keep evolving.
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