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Two numbers decide everything
- Up to Rs. 7,500 a night the room is 5% with no credit. Above Rs. 7,500 is 18% with full credit.
- The old exemption for rooms up to Rs. 1,000 was withdrawn from 18 July 2022. Budget rooms at registered properties are taxable.
- The test uses the value actually charged, not the rack rate. Declared tariff stopped governing room rates from 1 October 2019.
- 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.
- Rooms in the 5% band carry a no credit condition, so common input tax must be apportioned and the 5% share reversed.
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 Two 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. 7,500 per night (including up to Rs. 1,000)
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)
The threshold is inclusive at the top. 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. 7,499. The Rs. 1,000 line no longer matters: since 18 July 2022 a Rs. 999 room is taxable like any other room in the lower band.
Value Charged, Not Rack Rate
Before 1 October 2019 the 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. Notification No. 20/2019-Central Tax (Rate) replaced that test. 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. 2,500 | Rs. 10,000, so 18% | Four supplies of Rs. 2,500, each at 5% |
| Two rooms at Rs. 4,000, one night | Rs. 8,000, so 18% | Two supplies of Rs. 4,000, each at 5% |
| 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 longer and multi-room 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. 7,200 room is where this bites. Add a compulsory extra bed at Rs. 500 and the night is valued at Rs. 7,700, which pushes the entire supply from 5% without credit to 18%. Properties that price just under Rs. 7,500 need to check every mandatory add-on before assuming the lower rate 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 |
|---|---|---|---|
| 1 October 2019 to 17 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 | 5% without credit | 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.
A property running rooms on both sides of Rs. 7,500 has a further step that is easy to miss. Credit attributable to the 5% rooms is not available, so common input tax on maintenance, linen and utilities must be apportioned and the share for 5% rooms reversed. 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, redefined from 1 April 2025 to look at the value of supply instead of declared tariff.
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. 7,500 a night the room is 5% without credit, and above Rs. 7,500 is 18% with credit. The Rs. 1,000 exemption was withdrawn from 18 July 2022.
- The rate follows the value actually charged. Declared tariff stopped governing room rates from 1 October 2019, so discounting genuinely changes the band.
- Test per room per night, never against the invoice total. Four nights at Rs. 2,500 is four supplies at 5%.
- Compulsory extra charges count inside the room value and can push a room just under Rs. 7,500 into the 18% 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); Notification No. 20/2019-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.
Frequently Asked Questions
What is the GST rate on a hotel room in 2026?
Two rates apply, decided by the value of the room per night. Up to Rs. 7,500 the rate is 5% and the hotel cannot claim input tax credit. Above Rs. 7,500 the rate is 18% with full credit. The 12% slab was removed from 22 September 2025, and the old exemption for rooms up to Rs. 1,000 was withdrawn in July 2022, so budget rooms at registered hotels also pay 5%.
Is the rate decided by the rack rate or the price I actually pay?
The price actually charged. Before 1 October 2019 the law used declared tariff, so a discounted room could still be taxed on its published price. Notification No. 20/2019-Central Tax (Rate) replaced that test, and the rate now follows the transaction value for the stay. A room listed at Rs. 8,000 and sold at Rs. 7,200 in the off season is taxed at 5% for that booking, not 18%.
Is a room at exactly Rs. 7,500 taxed at 5% or 18%?
At 5%. The lower band covers rooms with a value up to and including Rs. 7,500 per unit per day, so 18% starts at Rs. 7,501. A single rupee of movement changes the rate and the credit position, which matters when a property prices deliberately just under the threshold or adds surcharges in peak season.
Do extra bed charges change the GST rate on the room?
They can, because a compulsory extra bed charge usually forms part of the value of the same accommodation supply rather than a separate service. A room at Rs. 7,200 with a compulsory extra bed at Rs. 500 has a value of Rs. 7,700 for the night, which moves the whole supply from 5% to 18%. The same logic applies to a mandatory service charge or a compulsory package element.
How is the threshold tested for a multi-night or multi-room booking?
Per unit and per day, never on the invoice total. Three nights at Rs. 5,000 are three supplies of Rs. 5,000 at 5%, not one supply of Rs. 15,000 at 18%. Two rooms at Rs. 4,000 booked together are two units at Rs. 4,000 each. Reading the threshold against the bill total is a common billing error that overtaxes longer stays.
Why did budget hotel bills fall in September 2025?
The 56th GST Council meeting removed the 12% accommodation slab and replaced it with 5% for rooms up to Rs. 7,500, notified through Notification No. 15/2025-Central Tax (Rate) and effective 22 September 2025. On a Rs. 6,000 room the tax fell from Rs. 720 to Rs. 300. The hotel gave up input tax credit in exchange, so the benefit to the guest is not costless to the property.
Does the Rs. 7,500 threshold affect the restaurant inside the hotel?
Indirectly, through the specified premises test. A property is specified for a financial year if any unit of accommodation exceeded Rs. 7,500 per day in the preceding financial year, or if the supplier filed an opt-in declaration. Restaurant service inside a specified premises is 18% with credit instead of 5% without. It does not change the room rates themselves.
Can a hotel claim input tax credit if it has rooms on both sides of Rs. 7,500?
Only for the part used for rooms above Rs. 7,500. Rooms in the 5% band carry the condition that no input tax credit is taken on goods and services used to supply them, so credit on common inputs such as maintenance, linen and utilities must be apportioned between the two bands and the share for 5% rooms reversed. Properties with a wide tariff spread often miss this reversal.
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