Navigating GST Changes in Restaurant Services

Summary: The GST framework for restaurant services has undergone significant changes since its introduction in July 2017. Initial rates varied based on air-conditioning, liquor licenses, and eligibility for the composition scheme. Amendments in November 2017 simplified this by introducing a uniform 5% GST without ITC for standalone restaurants and those in hotels with room tariffs below ₹7500. The 2019 revision introduced “Specified Premises” as a key determinant for GST rates. Changes in November 2021 made e-commerce operators responsible for GST on restaurant services under Section 9(5) of the CGST Act. Effective April 1, 2025, new provisions remove the concept of “Declared Tariff” and base GST rates on the actual value of accommodation services. Standalone restaurants remain taxed at 5% without ITC. Hotel-based restaurants with accommodation values above ₹7500 will continue at 18% with ITC. Businesses with values below ₹7500 can opt for 18% GST with ITC by submitting declarations. These changes aim to simplify compliance, enhance transparency, and reduce tax disputes. Restaurant service providers are advised to update their systems, train personnel, and ensure timely declaration submissions for compliance.

Evolution of GST on Restaurant Services

Since the implementation of the Goods and Services Tax (GST) regime, the taxation framework applicable to restaurant services has undergone significant amendments. To comprehensively understand the latest changes, it is imperative to examine the historical developments in the GST provisions pertaining to restaurant services.

1. GST Provisions applicable from 1st July 2017

Upon the introduction of GST, restaurant services were taxed at differential rates based on the nature of the establishment, as outlined below:

Restaurants that hold a license to serve alcoholic beverages, irrespective of whether they are air-conditioned or not, were subject to a GST @ 18% with ITC.

In the case of restaurants that do not hold a license to serve alcoholic beverages, the applicable GST rates was as follows:

• Restaurants that are air-conditioned or have central heating were subject to GST @ 18% with ITC &
• Restaurants that are non-air-conditioned were subject to GST @12% with ITC.

Further, Restaurant services were eligible to opt for the composition scheme and were required to discharge GST liability at the rate of 5% on their aggregate turnover. However, the composition scheme was subject to various statutory restrictions like prohibition on collecting 5% GST from customers, Turnover restrictions, ineligibility to claim ITC, restrictions on rendering inter-state services, and a prohibition on the sale or service of alcoholic beverages.

2. Amendments effective from November 2017

In response to consumer grievances regarding the non-passing of ITC benefits by restaurants, Notification No. 46/2017 – Central Tax (Rate), dated 15th November 2017, revised the applicable GST rates as follows:

• Standalone restaurants, eating joints, messes, and canteens were subjected to 5% GST without ITC, irrespective of factors such as air-conditioning or liquor licenses.
• Restaurants operating within hotels (hereinafter referred to as “Hotel based Restaurants”) where the declared tariff for rooms was below ₹7500 per day were also taxed at 5% without ITC.
• Hotel based Restaurant with declared room tariff of Rs ₹7500 per day and above continued to attract 18% GST with ITC.
• The said amendments have modified the regulatory framework, thereby shifting the balance in favour of the regular GST scheme, making it a more favourable option for standalone restaurant service providers in comparison to the composition scheme.

3. Changes effective from October 2019

Vide Notification No. 20/2019-Central Tax (Rate) dated 30^th September 2019, effective 1^st October 2019 the concept of “Specified Premises” was introduced as a key criterion for determining the applicable GST rate on restaurant services provided within hotels.

• Restaurant services provided at non-specified premises were chargeable at 5% without ITC.
• Restaurant services provided at specified premises were chargeable at 18% with ITC.

4. Amendments Effective from November 2021

Pursuant to Notification No. 17/2021 – Central Tax (Rate) dated 18th November 2021, restaurant services supplied through E-commerce operators (ECO) were brought under Section 9(5) of the CGST Act, making the ECO liable to discharge GST.

5. Recent Amendments Effective from 1st April 2025

Vide Notification No. 5/2025-Central Tax (Rate) dated 16th January 2025, the definition of “Specified Premises” has been revised, and the concept of “Declared Tariff” has been omitted. The revised definition of specified premises is as follows

“Specified premises”, for a financial year, means, –

(a) a premises from where the supplier has provided in the preceding financial year, ‘hotel accommodation’ service having the value of supply of any unit of accommodation above seven thousand five hundred rupees per unit per day or equivalent; or

(b) a premises for which a registered person supplying ‘hotel accommodation’ service has filed a declaration, on or after the 1st of January and not later than 31st of March of the preceding financial year, declaring the said premises to be a specified premises; or

(c) a premises for which a person applying for registration has filed a declaration, within fifteen days of obtaining acknowledgement for the registration application, declaring the said premises to be a specified premises.

6.Impact of the Amendments

The GST Council has introduced a strategic amendment with far-reaching implications. The key impacts of this change are analysed below:

6.1 Omission of Concept ‘Declared Tariff’

The omission of the concept “Declared Tariff” entails that, effective from 1st April 2025, GST rate on restaurant services provided in restaurant-based hotels will be based on the actual value of supply of any unit of accommodation in the preceding financial year.

6.2 Applicable GST Rate w.e.f. 1st April 2025

6.3 Declaration Filing Requirements

Hotel-based Restaurant service providers, where actual value of accommodation supply in the preceding financial year does not exceed Rs. 7,500, may opt to pay GST at 18% with ITC, by submitting an opt-in declaration as explained below:

• Existing Registered Person: For FY 2025-2026, opt-in declaration must be submitted by 31st March 2025, using Annexure VII of the notification.
• New Registered Person: Opt-in declaration must be submitted within 15 days of obtaining registration, using Annexure VIII of the notification.
• It is highlighted that option once exercised can’t be changed during the financial year. Opting out requires submission of a declaration in Annexure IX prior to the commencement of next financial year.

6.4 Consequential Amendments

Notification No. 08/2025-Central Tax (Rate) dated 16th January 2025, modifies item (c) of Notification No. 17/2017-Central Tax (Rate) dated 28^th June 2017, stipulating that registered persons opting for specified premises status must discharge liability at 18% GST with ITC benefits, and ECO shall no longer be liable to pay GST in respect of restaurant services provided by them.

7. Call for Action for Restaurant Service Providers

Hotel-based restaurant service providers must evaluate their eligibility under the revised definition of “Specified Premises.” Subsequently, the following steps should be undertaken to ensure compliance with the amended provisions:

• Consultation: Seek professional advice to determine the most beneficial tax structure for their operations.
• Declaration Submission: In case they intend to avail 18% GST on restaurant services with ITC option, ensure timely submission of opt-in declarations by 31st March 2025 for existing businesses and within 15 days of registration for new businesses.
• Intimation to ECO: if opt-in declaration is filed then ECO shall be informed to avoid payment of double taxation.
• System updates & Training: Implement necessary updates to accounting and invoicing systems to reflect the revised GST structure and provide training to finance and compliance personnel to ensure smooth transition and adherence to the new framework. It is also important to note that the GSTR-3B filing process will undergo significant modifications for restaurant filing Opt-in declaration, necessitating a thorough understanding of the updated requirements to ensure timely and accurate compliance.

8. Our comments:

The recent amendments are anticipated to offer substantial benefits to hotel-based restaurant service providers. The key advantages are outlined as follows:

• The amendments, effective from April 1, 2025, provide adequate transition time for businesses to adapt to the revised compliance requirements.
• The removal of the concept of “Declared Tariff,” which was subject to inconsistencies due to factors such as seasonal fluctuations and varying rates across different platforms (e.g., hotel websites, online travel agencies, and walk-in rates), is expected to reduce tax-related disputes and litigation.
• The burden of tracking declared tariffs is eliminated, thereby alleviating the compliance burden on businesses and reducing the administrative pressure on tax authorities.
• Replacement of declared tariff with actual value of accommodation services as the basis for taxation enhances transparency and helps prevent revenue leakages.
• Lastly, the amendment relieves ECO from the obligation of discharging GST liability where the registered person has opted to be classified as a specified premise by filing the requisite declaration.

We hope the above article provides valuable insights into the changes in the GST framework for restaurant services, helping businesses make informed decisions regarding their tax compliance and operational strategies.

*****

CA Jignesh Kansara | Founder Partner DAKSM & Co. LLP, Chartered Accountants