Hospitality is one of the most mis-taxed sectors under GST. Room tariffs, restaurant bills, banquets, spa, laundry and packages all carry different rules — and getting the bundling wrong is exactly what audits look for. This is a practical 2026 guide to how GST applies across a hotel or restaurant, and where operators quietly lose input tax credit they were entitled to keep.
Room tariffs and the rate slabs
Accommodation is taxed by the value of supply (the declared/charged tariff per unit per night). The principle to hold on to:
- Since 22 September 2025 (GST 2.0), rooms up to Rs 7,500/night are 5% without ITC (cut from 12%), while rooms above Rs 7,500 stay at 18% with full ITC. The catch with the 5% slab is the input credit you give up on that segment.
- The slab is driven by the actual transaction value, not a printed rack rate — so dynamic pricing changes the rate applied.
- Because slabs and thresholds have been revised over the years, the rate must be confirmed against the notification in force for the stay date.
Getting room-rate mapping right across seasons and channels (OTA vs direct) is where revenue teams and tax need to talk to each other.
Restaurants: the 5% vs 18% choice
This is the most common point of confusion:
- A standalone or hotel restaurant (where room tariffs are below the premium threshold) is typically taxed at 5% without input tax credit.
- A restaurant in a premium hotel (above the specified room-tariff threshold) is typically taxed at 18% with full ITC.
The trap: a hotel crosses the tariff threshold mid-year and the restaurant rate should change with it. Many do not adjust — and the mismatch surfaces in audit.
With hotels, the number that quietly costs the most is never the rate — it is the classification. A banquet bundled with food, a spa folded into the room folio, a renovation where the ITC was sitting right there unclaimed: I have seen all three picked apart in audit. Get composite-versus-mixed supply right at the billing stage and the rate takes care of itself. Get it wrong and you are arguing it three years later with interest running.
— Hardik Garg, Founder & Senior Advisor
Run a hotel or restaurant group?
We map every revenue line to the right rate, fix the ITC you are entitled to, and keep the classification audit-ready. We have done this for major hotel brands.
Composite vs mixed supply — where it bites
A package deal is not one rate by default. GST distinguishes:
- Composite supply — naturally bundled with a clear principal supply (e.g. room with complimentary breakfast). The whole bundle follows the principal supply’s rate.
- Mixed supply — items bundled for a single price that could be sold separately. The whole bundle attracts the highest rate among them.
Wedding packages, MICE packages and stay-plus-experience deals are where this goes wrong — and where a careful structuring of the offer can be both compliant and tax-efficient.
Banquets, events and outdoor catering
Banquet and event revenue blends venue hire, food, decor and sometimes accommodation. Each component can pull a different treatment, and outdoor catering has its own rate history. The safe approach is to document the supply structure for each event type rather than apply a blanket rate to the invoice.
Where hotels lose ITC
Premium properties paying 18% are entitled to ITC — but routinely under-claim or wrongly claim it:
- Renovation and FF&E — credit on furniture, fittings and equipment is often missed; construction credit for immovable property is largely blocked. The line between them matters.
- Pre-opening costs — large credits accumulate before launch and need careful treatment.
- Common-area and mixed-use credits — apportionment under Rules 42/43 where there are exempt or 5% lines.
A pre-opening and FF&E credit review frequently recovers far more than its cost.
Common hospitality GST mistakes
- Not re-rating the restaurant when the hotel crosses the tariff threshold.
- Treating every package as a single composite supply.
- Claiming blocked construction credit, or missing eligible FF&E credit.
- Applying rack rate instead of transaction value for the slab.
- Ignoring RCM on specific procurements.
Planning a property, renovation or pre-opening?
Get the ITC and classification right from day one. We build the GST structure alongside your project so nothing is left unclaimed.
The bottom line
Hospitality GST is not hard because the rates are high — it is hard because one property runs several rates at once, and the classification is decided at the billing counter, not in the return. Fix how rooms, food, banquets and bundled packages are invoiced, claim the ITC you are entitled to on the 18% side, and keep the composite-supply logic written down. Do that, and an audit becomes a morning of paperwork rather than a demand.