GST on hotels and hospitality in 2026 — room tariff slabs, restaurant rates, banquets, OTA flows and input tax credit, all explained in a structured guide.
GST on Hotels and Hospitality — Room Tariff Rates and Restaurant Rules 2025
Hotel accommodation is taxed at 12% for rooms priced below Rs. 7,500 per night and 18% for rooms at or above Rs. 7,500 — both on the actual transaction value, not a declared rack rate. Restaurants inside hotels where any room crosses that Rs. 7,500 threshold charge 18% GST with input tax credit; every other restaurant charges 5% without ITC. Banquets, outdoor catering, OTA flows and bundled packages each carry their own rate logic, and getting any one of them wrong creates demands, interest and penalties that compound faster than most operators expect.
Room Tariff GST: The Transaction Value Shift That Changed Everything
Until September 30, 2021, GST on hotel rooms was levied on the "declared tariff" — the rack rate published by the hotel, regardless of what the guest actually paid. That created absurd outcomes: a distress-sold room with a Rs. 8,000 declared tariff attracted 28% GST even when sold at Rs. 3,500. It also incentivised artificial tariff-splitting arrangements.
From October 1, 2021, following the 45th GST Council meeting, the basis shifted to the actual transaction value per unit per day. The 28% luxury slab was abolished entirely. Two slabs now apply for FY 2026-27:
| Transaction Value (per room per night) | GST Rate | ITC Available? |
|---|---|---|
| Below Rs. 7,500 | 12% | Yes |
| Rs. 7,500 and above | 18% | Yes |
> If the GST Council revises these thresholds via a fresh rate notification before you read this, that notification supersedes everything here. Always verify the current notification number against the CBIC portal before applying a rate.
What Exactly Counts as "Transaction Value"?
Transaction value under Section 15 of the CGST Act is the price actually paid or payable for the supply, including charges for any ancillaries not separately billed — but excluding GST itself. In practice:
- A room sold at Rs. 6,000 per night → 12% → GST of Rs. 720
- The same room sold at Rs. 7,500 → 18% → GST of Rs. 1,350
- A room with a rack rate of Rs. 9,000, sold at a genuine Rs. 5,500 promotional discount on the invoice → transaction value is Rs. 5,500 → 12% applies
That third point catches many hoteliers out. If a discount is pre-agreed, reflected on the invoice and linked to the specific supply, it reduces transaction value under Section 15(3). Post-supply discounts that are not pre-agreed in writing do not reduce the taxable value — so document your promotional pricing at the time of booking, not after checkout.
HSN Classification
Hotel accommodation falls under SAC 9963 (Accommodation, food and beverage services). Using an incorrect SAC in GSTR-1 does not by itself attract a penalty but creates notice risk during scrutiny. Align your property management system (PMS) or billing software with the correct sub-heading for your property type — hotel, inn, guest house, homestay, dharamshala or similar.
Restaurant Services: The Rs. 7,500 Trigger That Most Operators Miscalibrate
GST on restaurant services is not determined by the cuisine, the ambience or the food cost. The rate depends entirely on whether the restaurant is inside a hotel that has at least one room available at Rs. 7,500 or more per night, regardless of whether that room is occupied.
Standalone Restaurants and Regular Hotel Restaurants: 5%, No ITC
Restaurants not located in "specified premises" pay GST at 5% with no input tax credit. This rate applies to dine-in, takeaway and delivery supplied directly by the restaurant.
The no-ITC condition is the hidden cost of the lower rate. If your kitchen is paying 18% GST on cooking gas, packaging, refrigeration maintenance and crockery repairs, none of that is recoverable. For a high-throughput restaurant spending Rs. 15 lakh per year on taxable inputs, the embedded ITC foregone can exceed Rs. 2.7 lakh — effectively a 5%+ real tax rate on your cost base.
Restaurants in Specified Premises: 18%, With ITC
A restaurant inside a hotel where any room is available (not necessarily sold on that day) at Rs. 7,500 or more per night is in "specified premises." GST applies at 18% and full ITC is available on inputs and input services used for the restaurant.
Two scenarios that trap operators:
- A city business hotel with 80 standard rooms at Rs. 5,500 and one "executive suite" at Rs. 9,500 → the entire restaurant is in the 18% bracket because one room category exceeds the threshold.
- A resort that seasonally discounts all rooms below Rs. 7,500 in the off-season → during those months, the restaurant may shift to the 5% no-ITC bracket, but only if no room category remains available above Rs. 7,500. If the suite can still be booked at Rs. 9,500, the threshold is crossed regardless of occupancy.
Review your tariff grid every time you revise room pricing. The restaurant rate follows the room tariff, not the room revenue.
Outdoor Catering and Banquet Services
Outdoor catering — supplying food at a location other than the restaurant's own premises — is taxed at 5% without ITC under the current rate notification. This is the same rate as a standalone restaurant but carries a different SAC and different compliance implications.
Banquet services at the hotel property (hall + food together) are generally taxed at 18% with ITC as part of accommodation or event services. A standalone banquet hall rental with no food supplied is a rental of immovable property — also 18% GST with ITC.
The line between "outdoor catering" and "hotel banquet" is geographic, not culinary. If your team sets up a buffet at a client's corporate campus, that is outdoor catering. If the client and their guests come to your property, it is a banquet. Issuing a banquet invoice for off-site catering and claiming ITC on the kitchen inputs is a clean Section 73/74 exposure.
Bundled Packages: Composite Supply vs Mixed Supply
This is where most hospitality GST disputes are born. Hotels routinely sell packages that include accommodation, food, spa, airport transfers, guided tours and décor — all on a single invoice. The GST treatment depends on whether the bundle is a composite supply or a mixed supply.
When It Is Composite — and Why You Want It to Be
A composite supply under Section 2(30) of the CGST Act requires two conditions:
- Two or more supplies are naturally bundled and supplied in conjunction in the ordinary course of business.
- One of those supplies is the principal supply — the one giving the package its essential character.
The entire composite supply is taxed at the rate of the principal supply.
Example: A "honeymoon package" with 3 nights' accommodation, daily breakfast and an airport pickup. In the ordinary course of hotel business, breakfast and transfer are ancillary to the stay. Accommodation is the principal supply. Tax the entire package at the accommodation rate (12% or 18%, per room price per night). The Rs. 8,000 breakfast and Rs. 2,500 transfer embedded in the package are not taxed at their own rates.
When the Mixed Supply Rule Bites
A mixed supply under Section 2(74) is a combination of supplies that are not naturally bundled and could be sold independently. Tax applies at the highest rate among all components.
Example: A "festival weekend" bundle — one night's stay (18%), a spa session sold separately at the counter (18%), a bottle of wine from the minibar retail section, and a city-tour package run by a third-party operator. Each is independently marketable. If any component carries a rate above 18%, the entire bundle is taxed at that higher rate.
What to do in practice:
- Document on your rate card which packages are accommodation-led composites and which are experience-led mixed bundles.
- Ensure your PMS or ERP can tag the invoice type and apply the right output tax.
- For large events (weddings, conferences) where the classification is contested and the tax difference runs into lakhs, file an advance ruling under Form GST ARA-01 before the event, not during a department audit six months later.
OTA and Travel Agent GST: Who Pays What
Section 9(5) for Restaurant Aggregators
Under Section 9(5) of the CGST Act, the government has notified Zomato, Swiggy and similar food aggregators as e-commerce operators (ECOs) required to pay GST on restaurant services supplied through their platforms on behalf of the restaurant. From January 1, 2022, these ECOs discharge the entire GST liability that would otherwise fall on the restaurant.
Implications for a restaurant on Swiggy:
- The restaurant does not pay output GST on orders through the app.
- The restaurant does not need a GST registration solely for aggregator-platform sales (though registration is required if aggregate turnover exceeds Rs. 20 lakh from all sources combined).
- Swiggy/Zomato report these supplies in their own GST return and pay the tax.
OTA TCS on Hotel Bookings
When a hotel sells rooms through an OTA (MakeMyTrip, Booking.com, Agoda, Yatra, etc.), the OTA is an e-commerce operator under Section 52 of the CGST Act. The hotel remains the registered supplier and pays GST on accommodation. The OTA deducts Tax Collected at Source (TCS) at 1% (0.5% CGST + 0.5% SGST for intra-state, or 1% IGST for inter-state bookings) on the net taxable value of the booking.
The hotel credits this TCS in its Electronic Cash Ledger and uses it against its GST payment liability. To do so, the hotel must reconcile its bookings against the OTA's Form GSTR-8 filing every month.
TCS reconciliation failure is one of the most routine hotel GST audit triggers. If the OTA's GSTR-8 filing is late — which is common for smaller OTAs — the TCS credit does not appear in your GSTR-2B for that period, and you cannot apply it in your GSTR-3B without risk. Keep a running spreadsheet of booking values per OTA, cross-referenced monthly against their GSTR-8 data.
Travel Agents: Principal vs Agent
A travel agent who books accommodation as an agent (disclosing the hotel as principal on the guest's invoice) charges GST only on its service fee or commission. A travel agent who books and re-sells as a principal (the guest invoice names the agent as the supplier) charges GST on the full package value. This distinction is not always clear from the contract; make sure your invoicing treatment matches the legal relationship, because a mismatch between contract and invoice is a standard GST department finding during audits of B2B hospitality transactions.
Worked Example: A 3-Day Wedding Package
Facts: A four-star hotel charges Rs. 15,00,000 for a 3-day wedding for 100 guests. The package includes:
- 50 rooms × 3 nights × Rs. 8,000 per room = Rs. 12,00,000
- Banquet meals (all three days) = Rs. 2,50,000
- In-house décor and floral arrangement = Rs. 50,000
Step 1 — Composite or Mixed?
Accommodation, food and venue décor are naturally bundled for a hotel wedding in the ordinary course of business. Accommodation is the principal supply. This is a composite supply.
Step 2 — Rate
All rooms are Rs. 8,000/night ≥ Rs. 7,500. Principal supply rate = 18% GST.
Step 3 — Tax Calculation
| Component | Value (Rs.) | GST at 18% (Rs.) |
|---|---|---|
| Accommodation | 12,00,000 | 2,16,000 |
| Banquet meals | 2,50,000 | 45,000 |
| Décor | 50,000 | 9,000 |
| Total | 15,00,000 | 2,70,000 |
Total invoice value: Rs. 17,70,000.
Step 4 — ITC Available to the Hotel
The hotel can claim ITC on: linen and housekeeping supplies, F&B inputs, decoration materials procured from a GST-registered vendor, staff uniforms, and maintenance services for the banquet hall. Blocked: Works contract for the hall's last refurbishment under Section 17(5)(c). Reversal required: If any complimentary upgrades or free rooms are given to the wedding planner.
Step 5 — What If One Component Were Taxed Higher?
Suppose the couple arranges a fireworks display procured and invoiced by the hotel, and fireworks attract 28% GST. Now the bundle includes a 28% component. If this is reclassified as a mixed supply, the entire Rs. 15,00,000 is taxed at 28% — GST of Rs. 4,20,000 vs Rs. 2,70,000. The invoice structure alone determines a Rs. 1,50,000 difference. Keep third-party items (fireworks, entertainment, celebrity appearances) on a separate invoice wherever commercially feasible.
Common Mistakes and Pitfalls to Avoid
1. Running Legacy Software With the 28% Rate Still Active
Some property management systems were not updated after October 1, 2021. If your billing module still carries a 28% luxury slab, verify it immediately. Overcharging guests creates refund obligations; undercharging and depositing at the wrong rate creates a short-payment demand with 18% per annum interest from the due date.
2. Missing the "Any Room Above Rs. 7,500" Test for Restaurants
Even if 95% of your rooms are priced below Rs. 7,500, a single suite category available above that threshold pulls the entire restaurant into the 18% bracket. Many mid-segment city hotels with a "presidential suite" are serving restaurant meals at 5% when 18% is legally required — a recoverable demand plus penalty under Section 73.
3. Ignoring ITC Reversal on Complimentary Nights and Upgrades
A complimentary room given to a loyalty member, a travel agent or an influencer is either a deemed supply under Schedule I or a non-taxable supply depending on the facts. In either case, the ITC attributable to that room must be reversed under Rule 42 of the CGST Rules. Many hotels treat comp nights as an operational matter and never flag them for the GST team.
4. Not Reconciling OTA TCS With GSTR-8 Monthly
The OTA's TCS credit appears in your Electronic Cash Ledger only after the OTA files GSTR-8. If the OTA files three months late, you miss the credit for three months and either overpay in cash or carry a mismatch. Assign one person in your finance team to download the OTA's GSTR-8 acknowledgement every month and match it against your OTA settlement statement before the 20th.
5. Billing Off-Site Events as Hotel Banquets
If your team delivers food and service at a client's farmhouse, wedding venue or corporate campus, that is outdoor catering at 5%, no ITC. Raising a "banquet" invoice at 18% and claiming ITC on the kitchen inputs is not a grey area — it is a wrong classification that survives no scrutiny.
6. Attempting ITC on Hotel Renovation Under "Safari Retreats" Rationale
Section 17(5)(c) and (d) block ITC on works contracts for construction, renovation, repair and maintenance of immovable property. The Supreme Court's Safari Retreats judgment addressed a narrow set of facts around immovable property used for taxable supply. Until authoritative clarification fully settles the issue, do not claim renovation ITC without a documented legal opinion and advance ruling cover — the stakes are too high on a Rs. 5 crore refurbishment.
Monthly and Annual Compliance Checklist
Every Month (by the 20th of the following month)
- GSTR-1 (11th): Report all B2B and B2C outward supplies. For OTA-assisted bookings where the corporate guest needs ITC, ensure the guest's GSTIN is captured at check-in and reflected in GSTR-1.
- GSTR-3B (20th): Declare output tax, ITC claimed and net tax payable. Cross-check ITC in Table 4 against GSTR-2B — do not claim ITC that has not appeared in GSTR-2B without maintaining the Section 16(2)(aa) compliance documents.
- TCS reconciliation: Download OTA GSTR-8 acknowledgements and credit amounts. Update the Electronic Cash Ledger claim accordingly.
- ITC reversal computation: Run Rule 42 workings for any exempt supplies, complimentary nights, personal use or staff accommodation for the month.
- E-invoicing check (turnover > Rs. 5 crore): All B2B supplies require IRN generation via the Invoice Registration Portal (IRP) before dispatch.
Annual
- GSTR-9 (December 31 following the FY): Annual return consolidating all monthly filings. For hotels with multiple room-type slabs and mixed restaurant/banquet revenue streams, the Table 17 HSN summary and ITC reconciliation in Table 8 need careful preparatory workings.
- GSTR-9C (turnover > Rs. 5 crore): Reconciliation statement certified by a CA or CMA. Common adjusting items for hotels: rate reclassifications between periods, ITC reversal on fixed assets under Rule 43, and apportionment of common credits between taxable and exempt supplies.
Key Takeaways
- Room GST is 12% below Rs. 7,500 and 18% at or above Rs. 7,500 per night, both on actual transaction value — the old declared-tariff rule and the 28% luxury slab are gone as of October 2021.
- Restaurant rate follows the hotel's room tariff: if any room in the property is available at Rs. 7,500 or more, the restaurant must charge 18% with ITC; if no room crosses that line, it is 5% without ITC.
- Outdoor catering is 5% without ITC; hotel banquets are 18% with ITC — the delivery location, not the menu, determines which rule applies.
- Composite supply (accommodation-led) is taxed at the accommodation rate; once a bundle becomes a mixed supply, the highest component rate applies to everything — keep separately-marketable high-rate services off the composite invoice.
- OTA TCS (1%) flows through the OTA's GSTR-8 into your cash ledger — reconcile it every month or you lose both the credit timing and a clean audit trail.
- Section 17(5) hard-blocks ITC on construction and works contracts regardless of how the property is used — do not claim renovation ITC without documented legal backing.
- Complimentary nights, free upgrades and staff accommodation all trigger ITC reversals under Rule 42 — build this into your monthly GST close, not just into your annual GSTR-9 workings.
