Hotel rooms up to INR 7,500 a night carry 5 per cent goods and services tax from 22 September 2025, without input tax credit

From 22 September 2025, a hotel room with a value of supply of up to INR 7,500 per unit per day is taxed under goods and services tax (GST) at 5 per cent, on condition that the hotel takes no input tax credit on the goods and services used to supply it, and the hotel cannot choose a higher rate instead. Whether the restaurant in the same building charges 5 or 18 per cent turns on a separate test, the specified premises rule in force since 1 April 2025, whose next declaration window runs from 1 January to 31 March 2027.

What changed, and from when?

Two notifications, eight months apart, changed how a hotel is taxed. Service rates under the Central Goods and Services Tax Act, 2017 sit in Notification No. 11/2017-Central Tax (Rate) of 28 June 2017, and accommodation, food and beverage services are serial number 7 of its Table.

The first change came through Notification No. 05/2025-Central Tax (Rate) of 16 January 2025. With effect from 1 April 2025 it omitted the definition of "declared tariff" and substituted a new definition of "specified premises", which decides the rate on a hotel's restaurant service, outdoor catering, and outdoor catering with renting of premises.

The second came through Notification No. 15/2025-Central Tax (Rate) of 17 September 2025, made on the recommendations of the GST Council. With effect from 22 September 2025, against item (i) of serial number 7, it substituted a central tax rate of 2.5 per cent for the earlier 6 per cent, and inserted a condition in column (5): "Provided that credit of input tax charged on goods and services used in supplying the service has not been taken". Notification No. 15/2025-Integrated Tax (Rate) of 16 September 2025 makes the matching change in the integrated tax notification, at 5 per cent, from the same day.

The same notification also reached back. Paragraph (2) inserted two Explanations into the specified premises definition "with effect from the 1st day of April, 2025", so they apply from the day the definition itself began.

What does item (i) now say?

Item (i) of serial number 7 was given its present wording in two steps. Notification No. 20/2019-Central Tax (Rate) of 30 September 2019 described it as hotel accommodation with a value of supply of a unit "above one thousand rupees but less than or equal to seven thousand five hundred rupees per unit per day or equivalent". Notification No. 03/2022-Central Tax (Rate) omitted the words "above one thousand rupees but" from 18 July 2022. The entry has since covered every room up to INR 7,500, with no floor.

Before 22 September 2025 that entry carried central tax at 6 per cent and nothing in column (5), so credit on inputs was available. After it, the rate is 2.5 per cent and credit is barred.

The bar is not optional. Item (vi) of serial number 7, the residual entry for accommodation, food and beverage services at 9 per cent central tax, carries an Explanation that the items listed in its clause (a) "shall attract central tax prescribed against them in column (4) subject to conditions specified against them in column (5), which is a mandatory rate and shall not be levied at the rate as specified under this entry." Notification No. 15/2025-Central Tax (Rate) added item (i) to that list. A hotel cannot keep its credit on rooms at or below INR 7,500 by charging the higher rate.

Rooms above INR 7,500 fall under Explanation (c) to item (vi): "This entry covers supply of 'hotel accommodation' having value of supply of a unit of accommodation above seven thousand five hundred rupees per unit per day or equivalent." That rate, 9 per cent central tax, was not changed, and credit remains available on it.

What does "credit has not been taken" require?

Explanation (iv) in paragraph 4 of Notification No. 11/2017-Central Tax (Rate) gives the phrase a fixed meaning. Credit on goods or services used exclusively in supplying the service must not be taken. Credit on goods or services used partly for that service and partly for supplies that do earn credit "is reversed as if supply of such service is an exempt supply", attracting section 17(2) of the Central Goods and Services Tax Act, 2017 and the rules made under it.

So a hotel whose rooms fall on both sides of INR 7,500 is in the position of a supplier with taxable and exempt turnover. Common inputs, such as housekeeping contracts, laundry, linen, maintenance and the building's own services, are apportioned, and the share attributable to the lower-priced rooms is reversed.

How is a premises specified, and when?

The substituted clause (xxxvi) in paragraph 4 defines "specified premises", for a financial year, in three ways:

• a premises from where the supplier provided, in the preceding financial year, hotel accommodation "having the value of supply of any unit of accommodation above seven thousand five hundred rupees per unit per day or equivalent";
• a premises for which a registered person supplying hotel accommodation has filed a declaration "on or after the 1st of January and not later than 31st of March of the preceding financial year"; or
• a premises for which a person applying for registration has filed a declaration within fifteen days of obtaining acknowledgement for the registration application.

The declarations are in Annexure VII (registered persons) and Annexure VIII (applicants for registration), inserted by the same notification. Each is filed separately for each premises. Each continues to apply to later financial years until the supplier files the opt-out declaration in Annexure IX, which must also be filed between 1 January and 31 March of the preceding financial year.

The two Explanations added in September 2025 settle two terms. "Premises" means "a place from where hotel accommodation services are being supplied or are to be supplied." And "a person applying for registration" includes a person applying for amendment of registration to declare an additional place of business, so a hotel group opening a new property in a State where it is already registered can use the fifteen-day route.

The status matters for the kitchen, not the rooms. Item (ii) of serial number 7 taxes "restaurant service" other than at specified premises at 2.5 per cent central tax without credit, and it is one of the mandatory items in Explanation (a). Explanation (b) to item (vi) puts restaurant service at specified premises at 9 per cent, with credit. Items (iv) and (v), on outdoor catering and outdoor catering with renting of premises, follow the same divide.

What do the dates and figures look like?

An illustration. The property, its tariffs and the bills below are hypothetical. The rates are the central tax rates in serial number 7, doubled on the assumption that the State levies a matching State tax on an intra-State supply.

A city hotel with 100 rooms and one restaurant
  Standard room, value of supply per night                 INR 6,000
    Tax before 22 September 2025 (6 + 6 per cent)          INR 720, credit available
    Tax from 22 September 2025 (2.5 + 2.5 per cent)        INR 300, no credit
  Suite, value of supply per night                         INR 9,000
    Tax before and after (9 + 9 per cent)                  INR 1,620, credit available

Specified premises status
  One suite sold above INR 7,500 on any night in 2025-26   specified for 2026-27
  If the suite never sells above INR 7,500 in 2026-27      not specified for 2027-28
                                                           unless declared
  Window to file Annexure VII or Annexure IX for 2027-28   1 January to 31 March 2027

A restaurant bill of INR 10,000 in 2027-28
  At a specified premises (9 + 9 per cent)                 INR 1,800, credit available
  Not at a specified premises (2.5 + 2.5 per cent)         INR 500, no credit

Two features of the text drive these lines. Clause (a) of the definition turns on "any unit", so a single unit sold above INR 7,500 on a single night is enough, on the words, to make the premises specified for the whole of the next year. And because the test looks back a year, under clause (a), status for 2027-28 turns on the value of supply of units in 2026-27, whatever the restaurant's own prices, unless a declaration says otherwise.

Who is affected, and how?

For a hotel whose rooms sit wholly at or below INR 7,500, room tax fell and credit went with it. Credit on capital goods and common services that was previously set off against output tax on rooms is now a cost, unless the same inputs also serve supplies that still earn credit.

For a hotel with rooms on both sides of the line, the result is a reversal calculation every period under section 17(2), on the split between the two classes of room. The split follows the value of supply of each unit, so dynamic pricing moves rooms in and out of the lower entry from night to night.

For a hotel restaurant, the rate on the menu follows the rooms. A property that sold any unit above INR 7,500 last year charges 9 per cent central tax, with credit, this year. One that did not charges 2.5 per cent without credit, unless it has opted in. For a standalone restaurant that supplies no hotel accommodation, clause (b) is drafted for "a registered person supplying 'hotel accommodation' service", and Explanation 1 confines "premises" to a place from where hotel accommodation services are supplied or are to be supplied, so the opt-in route is, on its words, not open to it.

For an online travel platform listing these rooms, the amendments to serial number 7 change the rate on the room. They say nothing about the platform's own commission or convenience fee.

What remains unsettled?

Four points.

What "value of supply" of a unit means where a room is sold in a package. A rate that bundles breakfast, transfers or a spa credit raises the question of how much of it is the value of the room. Item (i) and the definition both use the phrase without a rule for apportionment.

What the opt-out in Annexure IX does against clause (a). The definition lists three routes into specified status and none out of it. Annexure IX lets a supplier declare a premises "not a 'specified premises'", but the text does not say whether that declaration displaces clause (a) where a unit was in fact sold above INR 7,500 the year before, or only withdraws an earlier opt-in.

Whether "any unit" means any unit on any day. Read literally, one night at a higher rate is enough. A reading that looks to a unit's ordinary tariff instead has no footing in the words that replaced "declared tariff", which the notification of 16 January 2025 omitted.

How the reversal works at the boundary. Explanation (iv) treats the lower-priced rooms as exempt for credit, but a room's class can change by the night. Whether the attribution under section 17(2) is made by room nights, by revenue or by some other key is left to the rules, and the notifications do not address it.