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Two numbers decide everything
- Up to Rs. 1,000 a night the room is exempt. Rs. 1,001 to Rs. 7,500 is 5% with no credit. Above Rs. 7,500 is 18% with full credit.
- The test uses the value actually charged, not the rack rate. Declared tariff stopped governing in 2025.
- It is tested per room, per night. Never against the invoice total.
- A compulsory extra bed or service charge counts in the value and can push a room across a threshold.
- Exempt rooms are not free of consequence. They trigger Rule 42 credit reversal.
Hotel GST bills look inconsistent because two thresholds sit inside them, and both are easy to read wrongly. The rate does not follow the brand, the star rating, the city, or what the property calls itself. It follows one number: the value of one room for one night.
The Three Bands
Tax Rate Chart
GST on hotel accommodation from 22 September 2025
Applied to the value of each unit of accommodation per day
Room up to Rs. 1,000 per night
Exempt : SAC 996311
Room Rs. 1,001 to Rs. 7,500 per night
No ITC : SAC 996311
Room above Rs. 7,500 per night
Full ITC : SAC 996311
Restaurant inside non-specified premises
No ITC : SAC 996331
Restaurant inside specified premises
Full ITC : SAC 996331
Source: Notification No. 11/2017-Central Tax (Rate) as amended by Notification No. 05/2025 and No. 15/2025-Central Tax (Rate)
Both thresholds are inclusive at the top. A room at exactly Rs. 1,000 is exempt and 5% starts at Rs. 1,001. A room at exactly Rs. 7,500 is at 5% and 18% starts at Rs. 7,501. One rupee decides it, which is why so many properties price at Rs. 999 and Rs. 7,499.
Value Charged, Not Rack Rate
This is the change most summaries have not caught up with. The old law used declared tariff, the published price, so a room listed at Rs. 8,000 and discounted to Rs. 6,000 could still attract the higher rate. That test is gone. The rate now follows the transaction value for the actual stay.
The practical effect runs both ways. Off-season discounting genuinely moves a room into a lower band. And a peak-season surcharge that lifts a Rs. 7,400 room to Rs. 7,900 moves that booking to 18%, even though the property's own rate card never changed.
Per Room, Per Night
The threshold is tested against one unit of accommodation for one day. Not the folio, not the booking, not the invoice.
| Booking | Wrong reading | Correct treatment |
|---|---|---|
| Four nights at Rs. 900 | Rs. 3,600, so 5% | Four exempt supplies of Rs. 900 |
| Two rooms at Rs. 900, one night | Rs. 1,800, so 5% | Two exempt supplies of Rs. 900 |
| One room, three nights at Rs. 2,500 | Rs. 7,500, so still 5% | Three supplies of Rs. 2,500, each at 5% |
Testing against the bill total systematically overtaxes budget stays, and it is the most frequent error in small-property billing.
What Counts Inside the Room Value
Charges that form part of the same accommodation supply come into the value and can move a room across a threshold.
Counted in: a compulsory extra bed charge, a mandatory service charge, a compulsory package element, and any charge the guest cannot decline while taking the room.
Not counted in: a genuinely optional service supplied and priced separately, such as a paid airport transfer, a spa treatment, or laundry billed on request. These are separate supplies taxed on their own merits.
The Rs. 950 room is where this bites. Add a compulsory extra bed at Rs. 200 and the night is valued at Rs. 1,150, which pushes the entire supply out of the exempt band and onto 5%. Properties that price just under Rs. 1,000 need to check every mandatory add-on before assuming the exemption holds.
Where an entire package of stay, meals and an activity is sold at one price and the elements are not naturally bundled, it becomes a mixed supply and the highest rate in the package applies to all of it.
What Changed in September 2025
| Period | Up to Rs. 1,000 | Rs. 1,001 to Rs. 7,500 | Above Rs. 7,500 |
|---|---|---|---|
| Before 18 July 2022 | Exempt | 12% with credit | 18% with credit |
| 18 July 2022 to 21 September 2025 | 12% with credit | 12% with credit | 18% with credit |
| From 22 September 2025 | Exempt | 5% without credit | 18% with credit |
The 56th GST Council meeting removed the 12% slab, notified through Notification No. 15/2025-Central Tax (Rate) dated 17 September 2025 and effective from 22 September 2025.
On a Rs. 6,000 room the guest's tax fell from Rs. 720 to Rs. 300, taking the bill from Rs. 6,720 to Rs. 6,300.
The Credit Trade Behind the Lower Rate
The guest's saving is funded by the hotel's lost input tax credit, and for some properties it is not a good trade.
At 5% the tax paid on linen, housekeeping supplies, utilities, maintenance, furniture, commissions and renovation is not recoverable. It becomes a cost that sits inside the room rate. A property that has just completed a refurbishment can be worse off in cash terms at 5% than it was at 12% with credit, even though both the headline rate and the guest's bill went down.
At 18% credit is available in full, which is why premium properties with heavy capital expenditure are less troubled by the higher rate than the number suggests.
Exempt rooms sit in a third position that is easy to miss. They are exempt, not zero rated, so credit attributable to them is blocked. A property running rooms below Rs. 1,000 alongside taxable rooms must apportion common input tax and reverse the exempt share under Rule 42 of the CGST Rules. This is the most commonly skipped step in properties with a wide tariff spread.
The Rs. 7,500 Threshold and the Restaurant
The upper threshold does a second job through the specified premises test introduced from 1 April 2025.
A premises is specified for a financial year if the value of any unit of accommodation there exceeded Rs. 7,500 per unit per day in the preceding financial year, or if the supplier filed an opt-in declaration. Note the tense: it looks back at last year, not at what you are charging today.
Being specified does not change any room rate. Since September 2025 each room is taxed on its own value regardless. What it changes is restaurant service inside the property, which moves from 5% without credit to 18% with credit. Whether that helps depends on the kitchen's input tax, and the comparison is worked through in GST on restaurant and food services.
Opting in or out is done through Annexure VII, VIII or IX, and for financial year 2026-27 the window closes on 31 March 2026.
Related Reading
The wider picture for hotel operators, including input credit mechanics and business travel recovery, is in GST on hotels and accommodation services. Invoice formats, the bill of supply for exempt rooms, and the invoice-cum-bill of supply are covered in the hotel GST invoice and billing guide. Non-hotel accommodation formats, along with the registration threshold and platform bookings, are in GST on guest house, lodge and homestay room rent. The rate restructuring in its wider context is in the GST 2.0 simplified rate structure.
Key Points to Remember
- Up to Rs. 1,000 a night the room is exempt, Rs. 1,001 to Rs. 7,500 is 5% without credit, and above Rs. 7,500 is 18% with credit.
- The rate follows the value actually charged. Declared tariff stopped governing the test, so discounting genuinely changes the band.
- Test per room per night, never against the invoice total. Four nights at Rs. 900 is four exempt supplies.
- Compulsory extra charges count inside the room value and can push a room just under Rs. 1,000 into the taxable band.
- The 5% rate costs the hotel its input tax credit, which can outweigh the rate cut for a property carrying heavy input tax.
- Specified premises status is decided by last year's tariffs and changes the restaurant rate, not the room rate.
Statutory references: Notification No. 11/2017-Central Tax (Rate) as amended by Notification No. 05/2025 and No. 15/2025-Central Tax (Rate); Sections 2(30) and 2(74) of the CGST Act, 2017; Rule 42 of the CGST Rules, 2017. Verify current rates on gst.gov.in before acting. This article is general information and not a substitute for professional advice.
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