Specified Premises under GST – A Practical Interpretation for the Hospitality Industry
- CA Vishal Mehta
- Mar 5
- 3 min read
Specified Premises under GST – A Practical Interpretation for the Hospitality Industry-by CA Vishal Mehta
1. Why the Concept Exists
In taxation, the challenge is often not about the tax rate itself, but about identifying when a higher rate should apply. The hospitality sector faced this exact issue under GST. Restaurants generally attract 5% GST without input tax credit, but restaurants operating inside premium hotels are taxed differently.
To remove ambiguity, the GST framework introduced the concept of “Specified Premises.” Instead of examining every restaurant separately, the law evaluates the nature of the hotel property itself. Once a hotel qualifies as a specified premises, the tax treatment of restaurants operating within that property automatically changes.
2. The Core Principle
A premises becomes “Specified” when the hotel crosses a particular tariff benchmark.
The principle is simple:
If a hotel demonstrates the ability to charge luxury-level room tariffs, the entire property is treated as a premium hospitality establishment for GST purposes.
Therefore, the classification is not based on restaurant quality, but on the accommodation capacity of the hotel.
3. The Trigger Point
The GST system uses a clear financial indicator.
If any accommodation unit in a hotel had a declared tariff exceeding ₹7,500 per day in the previous financial year, the entire hotel property is treated as a Specified Premises for the next financial year.
This means one premium room is sufficient to influence the GST treatment of the entire premises.
4. The Domino Effect on Restaurants
Once a hotel qualifies as a specified premises, an important shift occurs.
Restaurants located inside such premises must apply a different tax structure.
Restaurant Location | GST Rate | Input Tax Credit |
Standalone restaurants or restaurants in normal hotels | 5% | Not Allowed |
Restaurants inside Specified Premises | 18% | Allowed |
The policy logic is straightforward:
Luxury hospitality environments are expected to operate under a standard GST regime with ITC, rather than the concessional composition-type structure of 5%.
5. Understanding Through a Practical Scenario
Consider a hotel property with 40 rooms.
During FY 2024-25:
39 rooms were priced between ₹4,000 and ₹6,000
1 premium suite was rented for ₹8,200
Even though only one suite crossed the threshold, the entire hotel becomes a Specified Premises for FY 2025-26.
Consequences:
Restaurants inside the hotel must charge 18% GST
They can claim input tax credit on purchases
The concessional 5% restaurant scheme cannot be used
Thus, a single premium suite influences the tax structure of the entire restaurant operation inside the hotel.
6. The Declaration Mechanism
To maintain clarity and transparency, hotels are required to declare the status of their premises on the GST portal.
The declaration confirms whether the hotel:
Falls under Specified Premises, or
Continues as a Non-Specified Premises
This declaration typically applies for the upcoming financial year and helps ensure correct GST rate application.
7. A Concept Designed Around the Property, Not the Business
What makes the idea of specified premises unique is its property-based approach.
Instead of classifying restaurants individually, GST evaluates the character of the building itself. The hotel property acts as the determining factor for taxation.
In effect, the law says:
“The nature of the premises determines the nature of the restaurant taxation.”
8. Key Takeaway
The concept of Specified Premises is not merely a technical definition; it is a structural approach adopted by GST to separate premium hospitality environments from standard restaurant operations.
In simple terms:
If a hotel demonstrates luxury pricing capacity,
The premises becomes Specified,
And restaurants operating inside must follow the 18% GST regime with input tax credit.
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