The GST Council, in its 55th meeting, has recommended important changes to the taxation framework for hotel accommodations and restaurant services. These modifications are aimed at linking GST rates to the actual value of supply and providing flexibility to hotels and restaurants in determining their applicable tax structure.
Key Changes in GST Rates and Definitions
Omission of ‘Declared Tariff’
- The term “declared tariff” will be omitted, and the “value of supply” of accommodation will be used as the reference point for determining GST applicability.
Amendment of ‘Specified Premises’ Definition
- The definition of “specified premises” will be revised to link the GST rate applicable to the actual value of supply of accommodation.
Tax Rate for Restaurant Services in Hotels
- 5% GST (Without Input Tax Credit) will apply if the value of supply for units of accommodation is ₹7,500 or below in the preceding financial year.
- 18% GST (With Input Tax Credit) will apply if the value of supply exceeds ₹7,500.
Option for Hotels to Opt for 18% GST with ITC
- Hotels will have the option to apply a flat 18% GST with ITC for restaurant services by submitting a declaration at the beginning of the financial year or upon obtaining registration.
Implementation Timeline
- These changes are set to take effect from April 1, 2025, allowing sufficient time for businesses to adapt and mitigate any transitional challenges.
Implications of the Changes
Hotels and Restaurants
- Enhanced Flexibility: Hotels can choose their preferred tax structure based on operational preferences and customer profiles.
- Simplification: The omission of “declared tariff” ensures clarity in GST applicability based on actual supply value.
- Competitive Pricing: Hotels with accommodations priced under ₹7,500 can continue offering lower rates with a 5% GST slab.
Customers
- Transparent Pricing: Tax rates will reflect the actual value of services provided, ensuring transparency for consumers.
- Consistent GST Rates: Simplified rules will help eliminate discrepancies in billing practices.
The proposed changes aim to streamline GST applicability for hotel accommodations and restaurant services, ensuring fairness and transparency in the taxation system. By linking GST rates to the actual value of supply and offering options for businesses to choose their tax structure, the changes are expected to benefit both service providers and consumers.
Key Takeaways
- GST rates for restaurant services in hotels will depend on the value of accommodation supply in the preceding financial year.
- A new option allows hotels to opt for a flat 18% GST rate with ITC by submitting a declaration.
- The changes will be effective from April 1, 2025, providing ample time for preparation and compliance.
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