Tax for hotels and restaurants in India

Hospitality GST changed under Reform 2.0 (22 September 2025): hotel rooms up to Rs 7,500 a night are 5% with no input credit, above Rs 7,500 they are 18% with credit, and the rate is based on the actual price charged, not a declared tariff. Standalone restaurants are 5% no-ITC. The specified-premises rule means that if any room in your hotel crossed Rs 7,500 a night in the previous financial year, your in-house restaurant is 18% (with credit) rather than 5%. Alcohol is outside GST under state VAT and excise, and banquet hire is 18%.

Presumptive + GST + TDS at a glance

Presumptive taxation

Section:: Sec 44AD
Deemed profit rate:: 6% on digital receipts / 8% on other receipts
Classification:: business

GST treatment

Slab:: 5%
SAC:: 9963 accommodation/food: rooms <=Rs 7,500 5% no-ITC, >Rs 7,500 18% ITC; standalone restaurant 5% no-ITC; specified-premises restaurant 18% ITC; banquet 18%; alcohol outside GST
Composition eligible:: Yes
Reverse charge (RCM):: Not applicable

TDS exposure

Last reviewed: 29 May 2026

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Hospitality is a business whose tax life is dominated by GST, and the rates changed under Reform 2.0 from 22 September 2025. A hotel room up to Rs 7,500 a night is taxed at 5% with no input credit; above Rs 7,500 it is 18% with input credit, and the rate is based on the actual price charged, not a declared tariff. A standalone restaurant is 5% with no input credit. The catch is the specified-premises rule: if any room in your hotel crossed Rs 7,500 a night in the previous financial year, your in-house restaurant is taxed at 18% (with credit) rather than 5%. Alcohol stays outside GST under state VAT and excise.

What business structure do hotels and restaurants use?

The common patterns for hotels and restaurants are: Sole proprietor or partnership, common for a standalone restaurant or small hotel, LLP, for a co-owned hospitality business, Private limited, for a hotel or restaurant chain (funding, scale, CSR at thresholds). The right structure depends on revenue, liability exposure, and personal circumstances, covered below.

Hotel room GST: 5% or 18% at Rs 7,500

Since 22 September 2025, a hotel room up to Rs 7,500 a night is taxed at 5% GST with no input credit; a room above Rs 7,500 is 18% with input credit. The rate is set by the actual value of the supply (the price charged per room per night), the old declared-tariff concept has been abolished. So a budget hotel pays 5% but cannot recover GST on its costs, while a premium hotel charges 18% but recovers input credit on rent, supplies and overheads. Choose pricing and credit strategy together, the lower rate is not automatically better once you account for the credit you give up.

Hotel rooms up to Rs 7,500/night are 5% GST with no input credit; above Rs 7,500 they are 18% with credit; the rate is based on the actual price charged. (CGST Act 2017 + Notification 5/2025-CTR (post-Reform-2.0 accommodation rates, effective 22 September 2025))

Restaurants and the specified-premises rule

A standalone restaurant, cloud kitchen or takeaway is 5% GST with no input credit. A restaurant inside a hotel follows the hotel: if the hotel is specified premises, meaning any room crossed Rs 7,500 a night in the previous financial year, the restaurant is taxed at 18% with input credit; otherwise it is 5% with no credit. Specified-premises status is a previous-year test, not a per-transaction one, so a single Rs 7,500-plus room last year sets the restaurant rate for this year. A small restaurant below Rs 1.5 crore can alternatively use the composition scheme at 5%.

Standalone restaurants are 5% GST no-ITC; an in-hotel restaurant is 18% with ITC if the hotel is specified premises (any room over Rs 7,500/night in the previous FY). (CGST Act 2017 + Notification 5/2025-CTR (specified-premises definition); s.10 composition (5% restaurants))

Alcohol, premises rent and the 35AD legacy

Alcoholic drinks for human consumption are outside GST, taxed under state VAT and excise, so a bar or restaurant accounts for liquor separately from its GST-able food. Rent of premises or a banquet hall attracts 194-I TDS at 10% (with the threshold raised to Rs 50,000 a month from 1 April 2025), and banquet and convention hire is 18% GST with credit. The Section 35AD investment-linked deduction (100% of qualifying capital expenditure for a new two-star-plus hotel) is largely legacy now and effectively closed to new claimants, so do not build a new hotel project around it.

Alcohol is outside GST (state VAT/excise); premises and banquet rent attract 194-I TDS at 10% (threshold Rs 50,000/month); Section 35AD hotel deduction is legacy. (State VAT/excise (alcohol); Income-tax Act 1961 s.194-I (Income-tax Act 2025 s.393) + s.35AD (specified business, legacy))

Allowable expenses

Category	Examples	Tax treatment
Food and beverage cost	Ingredients, supplies, packaging	Cost of sale; input credit only where the 18%-with-ITC band applies
Premises	Rent, electricity, kitchen and dining fit-out	Deductible; 194-I TDS on rent over Rs 50,000/month; ITC depends on band
Staff	Chefs, waiters, housekeeping	Deductible if keeping books; PF/ESI where applicable
Licences	FSSAI, excise, fire NOC, trade licence	Deductible business expense
Admin and marketing	Aggregator commission, accounting, GST filing	Deductible business expense

Vehicle and travel costs

Delivery and supply vehicles are deductible under regular books, or included in the deemed profit under Section 44AD; input credit on most motor vehicles is restricted under Section 17(5).

Capital allowances and equipment

On regular books, kitchen equipment, refrigeration and furniture depreciate (generally 15% WDV), computers at 40%. Under Section 44AD no separate depreciation is claimed. A legacy two-star-plus hotel may have claimed 35AD on qualifying capital expenditure.

Worked example

Coastal Inn — Goa, GA

small hotel with an in-house restaurant and bar (2026-27)

Most rooms are priced at Rs 6,000 a night, but a few suites went above Rs 7,500 last year. The hotel has a restaurant and serves alcohol.

Rooms up to Rs 7,500 are charged at 5% GST with no input credit; the suites above Rs 7,500 are 18% with credit. Because at least one room crossed Rs 7,500 last year, the hotel is specified premises, so the in-house restaurant is taxed at 18% with input credit, not 5%. Alcohol sales are kept outside GST and accounted for under Goa VAT and excise. If it rents banquet space, 194-I TDS at 10% applies on rent over Rs 50,000 a month.

Common audit triggers for hotels and restaurants

Charging 12% on rooms (the old declared-tariff band) after 22 September 2025
Applying 5% to an in-hotel restaurant when the hotel is specified premises (should be 18%)
Claiming input credit on a 5%-no-ITC room or restaurant supply
Not accounting for alcohol separately under state VAT/excise
Missing 194-I TDS on premises or banquet rent over Rs 50,000/month
Cash receipts over 5% of turnover while using the Rs 3 crore 44AD limit

Frequently asked questions

What GST applies to hotel rooms now?+

Since 22 September 2025, a room up to Rs 7,500 a night is 5% GST with no input credit, and a room above Rs 7,500 is 18% with input credit. The rate is based on the actual price charged per room per night, the old declared-tariff concept has been abolished. A budget hotel pays less GST but cannot recover GST on its costs.

Why is my hotel restaurant taxed at 18% not 5%?+

Because of the specified-premises rule. If any room in your hotel crossed Rs 7,500 a night in the previous financial year, the hotel is specified premises and its in-house restaurant is taxed at 18% with input credit, rather than the 5% no-credit rate of a standalone restaurant. It is a previous-year status test, so one premium room last year sets this year's restaurant rate.

How is alcohol taxed in a restaurant or bar?+

Alcoholic drinks for human consumption are outside GST and are taxed under state VAT and excise. So you account for liquor sales separately from your GST-able food and room supplies, and there is no GST input credit on alcohol. This split is a core part of hospitality accounting, food and rooms under GST, alcohol under state levies.

Can a small restaurant use the composition scheme?+

Yes, a restaurant below Rs 1.5 crore turnover can use the composition scheme at 5% (without input credit), with simpler quarterly filing, provided it does not sell inter-state or through an e-commerce operator (a restaurant on a delivery aggregator should check this). Otherwise a standalone restaurant is on the regular 5%-no-ITC rate.

Last reviewed: 29 May 2026