Finance Ministry Updates 5% GST Rule for Restaurants Without Fixed Locations

The Finance Ministry announced that a 5% GST without input tax credit will apply to restaurant services provided outside the restaurant premises or at non-specified locations.

However, restaurant services provided at specified premises will be subject to an 18% GST, which includes the benefit of input tax credit. This means that customers dining at restaurants located within these specified locations will have to pay a higher tax rate compared to those dining at non-specified locations.

A hotel that charges more than Rs.7,500 per night for even a single room in a financial year will automatically be classified as a specified premise for the following financial year. This classification impacts the tax rates applicable to restaurant services within the hotel.

Hotel service providers, whether already registered or new applicants, can choose to declare their premises as specified premises for a financial year.

As per an expert, this change means that if a small hotel in FY25 charges even once more than Rs.7,500 per night for a room, it will have to add 13% extra GST for customers in the following year. This could make restaurants in smaller hotels less competitive compared to standalone restaurants. High tax rates often lead to tax evasion.

According to another expert, hotels can choose the specified-premises classification if their room rates do not exceed Rs.7,500 in the previous financial year.