From Sept 22, 5% GST to apply on budget hotel stays, ITC option removed
If you are planning a holiday this festive season or running a hotel business, a key tax clarification issued by the Central Board of Indirect Taxes and Customs (CBIC) could impact your bill. Effective September 22, 2025, hotel accommodation priced up to ₹7,500 per room per day will attract a 5% Goods and Services Tax (GST) rate — but without the benefit of input tax credit (ITC).
In its latest clarification, the CBIC has made it clear that hotels do not have the option to levy GST at 18% with ITC for rooms priced at or below this threshold.
CBIC’s clarification
“Suppliers of hotel accommodation service where the value of a unit of accommodation is less than or equal to ₹7,500 per unit per day shall have to charge GST at 5% without ITC on such units. It is a mandatory rate prescribed for such services. The option to pay GST at 18% with ITC is not available.”
This means not only will hotels have to charge guests the concessional 5% rate, but they will also be barred from availing ITC on goods and services used for providing these accommodation services.
The tax body reiterated that this is a prescribed condition under the law, leaving no leeway for hotels to opt for the higher slab with ITC benefit.
What it means for travellers
For holiday-goers booking rooms under ₹7,500 per night, the GST rate remains lower at 5%, ensuring affordability. However, industry insiders note that hotels might see an impact on margins, as denial of ITC increases their effective cost of operations.
What it means for hotels
Hotels with a significant share of rooms priced under this threshold will be unable to claim ITC on expenses incurred on inputs such as housekeeping services, food & beverages, and maintenance. This could weigh on profitability, especially in budget and mid-market segments.
The clarification comes ahead of the peak festive and wedding season, when demand for hotel rooms typically surges. Stakeholders say while the move offers rate clarity for consumers, the lack of ITC flexibility may dampen sentiment in the hospitality industry.