What the 56th GST Council Means for Hotels!!

The hospitality industry in India is undergoing a period of rapid transformation. Driven by domestic tourism, business travel, and international visitors, hotels are both beneficiaries and contributors to India’s economic growth. Every GST Council meeting plays a crucial role in shaping how hotels price their services, manage supplies, and plan for the future.

The 56th GST Council Meeting introduced significant changes aimed at simplifying tax structures, boosting affordability, and encouraging compliance. For hoteliers, these reforms bring a mix of opportunities and challenges that directly impact business strategy and guest experience.

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Key GST Changes Announced

1. Hotel Room Tariffs

• Rooms priced up to ₹7,500 per night → 5% GST (without Input Tax Credit – ITC), reduced from the earlier 12% GST (with ITC).

• Rooms priced above ₹7,500 per night → continue under the 18% GST slab (with ITC).

2. Restaurant Services

• Restaurants in hotels remain at 5% GST without ITC, keeping dining affordable for guests but challenging for operators.

3. Simplified Slabs

• The GST structure has been rationalized to primarily two slabs – 5% and 18%, effective from September 22, 2025.

4. Other Goods & Services

• Toiletries, linens, furnishings, kitchen equipment, beverages → taxed in the 5–18% GST range, with limited ITC available to hotels.

🏨 Impact on Different Hotel Segments

• Budget & Mid-Market Hotels: Big winners from the reforms, as 5% GST on tariffs under ₹7,500 makes stays more affordable for domestic travelers and corporates.

• Luxury Hotels: Continue under 18% GST, which means higher costs and pricing pressure compared to mid-market competitors.

• Banquets & Events: With 18% GST on hall rentals and F&B, weddings and conferences will see increased pricing, possibly pushing demand towards package-based deals.

• Restaurants in Hotels: Operating under 5% GST without ITC, restaurants face margin pressure since most supplies (taxed at 12–18%) cannot be credited.

📦 GST on Hotel Supplies

Hotels depend on a wide range of supplies to deliver guest experiences, many of which fall under higher GST slabs:

• Toiletries & Amenities (shampoos, soaps, dental kits): 18% GST

• Linens, Furnishings, Mattresses: 12–18% GST

• Kitchen Equipment & Food Supplies: 12–18% GST

• Non-Alcoholic Beverages: 12–18% GST

Since ITC is blocked or limited for many of these items, the effective operating cost for hotels increases — especially for restaurants and banquet operations.

🌟 Positives & Opportunities for the Hotel Industry

Despite challenges, the new GST structure opens multiple avenues for growth:

• Boost to Domestic Tourism: Families and business travelers find hotel stays more affordable due to 5% GST on mid-range rooms.

• Mid-Segment Strengthening: Hotels in the ₹4,000–₹7,500 range gain a strong competitive edge, bridging the gap between budget and luxury.

• Creative Packaging: Hotels can design bundled staycation offers — rooms, meals, activities — under one tariff to maximize GST efficiency.

• Sustainability Advantage: Local sourcing of food, furnishings, and eco-friendly supplies can lower costs and boost brand value.

• Digital Compliance: Simplified slabs and GST-aligned software help streamline operations and improve investor confidence.

• Guest-Friendly Pricing: Value-driven pricing strategies improve occupancy and attract new customer segments.

🚧 Challenges for Hotels

• No ITC on Major Supplies: With toiletries, linens, and kitchen goods taxed at 12–18% GST, hotels under the 5% slab cannot claim ITC, inflating operating costs.

• Tariff Gap: Luxury hotels at 18% GST face a 13% tax disadvantage compared to mid-range hotels at 5%, intensifying price-based competition.

• Banquet & Event Costs: 18% GST on hall rentals and F&B makes weddings and corporate events costlier.

• Restaurant Margins: Operating restaurants under 5% GST without ITC erodes profitability due to higher supply-side costs.

• Compliance Pressure: Frequent GST changes mean hotels must invest in technology and training to ensure compliance.

💡 Strategic Actions for Hoteliers

To navigate this new tax landscape, hotels can:

1. Negotiate with Vendors: Focus on bulk rates and local sourcing to reduce procurement costs.

2. Bundle Smartly: Create packages that include stays, meals, and activities under a single tariff.

3. Adopt Tech Solutions: Invest in GST-compliant accounting tools for smooth operations.

4. Prioritize Guest Value: Offset rising costs by offering personalized, high-value experiences.

5. Leverage Sustainability: Build guest loyalty by aligning with eco-conscious trends.

✅ Conclusion

The 56th GST Council reforms are a turning point for India’s hospitality sector. While mid-range hotels benefit from 5% GST on tariffs, luxury hotels and F&B operations continue to face pressure under the 18% slab with ITC restrictions. Yet, with adaptability, innovation, and guest-first strategies, the industry can turn these challenges into opportunities.

At Malsi Mist, we believe in embracing change with creativity. Every shift in policy inspires us to refine our services, design smarter experiences, and deliver hospitality that is crafted by nature, served with soul. 🌿