Library / Goods and Services Tax: The Professional's Master Guide
50. Case Study 6: Hotel with Restaurant, Banquet and Catering
50.1 Facts
Hotel Girnar Residency, Rajkot, Gujarat, has 60 rooms, a restaurant and a banquet hall. In FY 2025-26 it sold its suites at Rs. 9,500 a night. It filed no declaration about specified premises. Supplies for June 2026 were:
Supply | Value (Rs.) | Rate | GST (Rs.) |
|---|---|---|---|
Standard rooms: 600 nights x 4,500 | 27,00,000 | 5% | 1,35,000 |
Deluxe rooms: 300 nights x 6,800 | 20,40,000 | 5% | 1,02,000 |
Suites: 60 nights x 9,500 | 5,70,000 | 18% | 1,02,600 |
Restaurant | 30,00,000 | 18% | 5,40,000 |
Banquet with food, in the hotel | 12,00,000 | 18% | 2,16,000 |
Outdoor catering at a client's farmhouse | 4,90,000 | 18% | 88,200 |
Total | 1,00,00,000 | 11,83,800 |
ITC for the month: kitchen equipment, crockery and commercial gas Rs. 2,40,000; room linen and amenities Rs. 1,06,200; common items (housekeeping, security, software, marketing, repairs) Rs. 3,20,000.
50.2 Issues
- Rate on each room around the Rs. 7,500 line.
- Whether the hotel is "specified premises" for FY 2026-27, and the effect on restaurant, banquet and catering.
- Credit eligibility and apportionment between supplies with and without ITC.
50.3 Analysis and computation
Rooms. The test is the value of supply per unit per day, not a published tariff. A room at Rs. 7,500 or less is taxed at 5% without ITC; above Rs. 7,500 at 18% with ITC. The test runs room night by room night. A suite with a list price of Rs. 9,500 sold at Rs. 7,200 after a corporate discount is taxed at 5% on Rs. 7,200. Extra bed charges are part of the value of that unit. The place of supply is the hotel's location, so every guest, from any State, pays CGST and SGST.
Specified premises. From 1 April 2025, premises are specified premises for a financial year if the hotel supplied any unit of accommodation at a value above Rs. 7,500 per day in the preceding financial year, or if it opts in by a declaration filed between 1 January and 31 March of the preceding year. Girnar sold suites at Rs. 9,500 in FY 2025-26, so it is specified premises for the whole of FY 2026-27.
The consequences are wide. Restaurant service moves to 18% with ITC. The 5% entries for outdoor catering and for catering with renting of premises exclude suppliers providing hotel accommodation at specified premises, so the banquet and even catering at a client's farmhouse go to 18%. Readers should check the current wording of the rate notification for these entries.
Illustration 214: Apportionment of credit for June 2026 Step 1: Kitchen credit is used only for restaurant, banquet and catering, all at 18% with ITC. Eligible in full: Rs. 2,40,000. Step 2: Room linen serves all rooms. Split on room revenue: suites 5,70,000 out of 53,10,000. Eligible = 1,06,200 x 5,70,000 / 53,10,000 = Rs. 11,400; not eligible Rs. 94,800. Step 3: Common credit split on total turnover. Supplies without ITC (rooms at 5%) = Rs. 47,40,000; total = Rs. 1,00,00,000. Not eligible = 3,20,000 x 47,40,000 / 1,00,00,000 = Rs. 1,51,680. Eligible Rs. 1,68,320. Step 4: Eligible ITC = 2,40,000 + 11,400 + 1,68,320 = Rs. 4,19,720. Not eligible = Rs. 2,46,480. |
Output tax for June 2026 | Rs. 11,83,800 |
Less: eligible ITC (may be used against 5% room tax too) | Rs. 4,19,720 |
Cash payable (CGST and SGST in equal halves) | Rs. 7,64,080 |
The alternative the hotel should consider for FY 2027-28 is to cap every room at Rs. 7,500 during FY 2026-27. It would then not be specified premises in FY 2027-28 (unless it opts in), and the table below shows what walk-in guests would pay.
Guest bill before tax | Specified premises (18%) | Not specified (5%) |
|---|---|---|
Dinner for four, Rs. 10,000 | Rs. 11,800 | Rs. 10,500 |
Banquet for a family function, Rs. 2,00,000 | Rs. 2,36,000 | Rs. 2,10,000 |
Corporate conference (client takes ITC), Rs. 2,00,000 | Net cost Rs. 2,00,000 | Net cost Rs. 2,10,000 |
The hotel would lose the Rs. 2,40,000 kitchen credit and part of the common credit each month, and the income on suites. The choice depends on the mix of walk-in diners and corporate clients.
50.4 Compliance and documentation
- Separate tax invoices, or separate lines, for room, food and banquet, with the room rate per night visible.
- Rule 42 working each month for common credit, with the annual true-up.
- A note in the file for each year on specified premises status and the evidence (highest room value in the preceding year, or the declaration).
- Room bookings through an online platform: where the hotel is registered, it pays tax itself; the platform does not pay under section 9(5).
Key point Lessons A single suite sold above Rs. 7,500 in one year changes the restaurant rate for the whole of the next year. Room credit is split between 5% and 18% rooms; kitchen credit follows the restaurant status. Credit validly taken can be used to pay the 5% room tax; the ledger is not ring-fenced by supply. |
Chapter summary • Rooms are taxed night by night at 5% up to Rs. 7,500 and 18% above. • Suites sold at Rs. 9,500 in FY 2025-26 made the hotel specified premises for FY 2026-27. • Restaurant, banquet and catering then go to 18% with ITC. • Eligible credit for June 2026 is Rs. 4,19,720 and cash payable Rs. 7,64,080. |
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