‘Specified Premises’ Clarified for Restaurants – No Self-Tagging for Stand-Alone Outlets

Dining out may be a pleasure, but when it comes to GST, restaurants have often found themselves in a stew of confusion. One of the biggest grey areas has been the definition of “specified premises” and whether stand-alone restaurants could classify themselves under this category to charge 18% GST with Input Tax Credit (ITC) instead of the usual 5% without ITC.

The 56th GST Council Meeting (3rd September 2025) finally addressed this issue with clarity. It categorically stated that stand-alone restaurants cannot declare themselves as specified premises. They must continue charging 5% GST without ITC, unless specifically covered under law.

This clarification plugs a loophole, ensures uniform tax application, and prevents misuse. Let’s break down what this means for restaurants, customers, and compliance officers.

Background – GST on Restaurants Before the Clarification

Under the existing GST framework, restaurant services have been taxed under two broad categories:

• Normal Restaurants (stand-alone, takeaways, cloud kitchens, catering):
  GST at 5% without ITC under Notification No. 46/2017-Central Tax (Rate).
• Restaurants in Specified Premises (like high-end hotels with declared tariff above threshold):
  GST at 18% with ITC.

This dual treatment was designed to balance affordability for the public while allowing upscale establishments to claim credits against their larger input costs.

However, some stand-alone restaurants started self-declaring themselves as specified premises, charging 18% GST and availing ITC. This not only created confusion but also opened doors to rate arbitrage and unfair competition.

The GST Council Clarification

The Council has now drawn a firm line. Its recommendations make clear that:

• Stand-alone restaurants cannot call themselves specified premises.
• They must continue to levy 5% GST without ITC.
• Any attempt to charge 18% with ITC without falling within the statutory definition will be disallowed.
• CBIC will issue an explanatory circular and align the definition of “specified premises” for uniformity.

Impact of the Clarification

For Restaurants

• No scope for arbitrage between 5% without ITC vs 18% with ITC.
• Stand-alone restaurants will need to audit their billing and rectify misclassifications immediately.
• ERP and POS systems must be updated to reflect the correct 5% slab.

For Customers

• Bills from stand-alone restaurants will be clearer and more predictable.
• Customers no longer need to question why one outlet charged 5% while another charged 18%.

For the Industry

• Promotes fairness and uniformity in the restaurant sector.
• Prevents revenue leakage due to wrongful ITC claims.
• Creates a level playing field between small eateries and larger chains.

Legal Provisions at Play

1. Section 9, CGST Act, 2017 – levy of GST on taxable supplies, including restaurant services.
2. Notification No. 46/2017-Central Tax (Rate) – prescribes GST rates for restaurant services.
3. Explanation of “specified premises” – linked to hotels, inns, or guest houses with declared tariff above prescribed thresholds.
4. Council’s Clarification (Sept 2025) – strengthens interpretation, ensuring that stand-alone restaurants cannot self-tag.

Real-Life Examples

• Case 1 – Stand-Alone Restaurant Misclassification
  A family restaurant was charging 18% GST and claiming ITC on groceries and interiors. With the new clarification, it must revert to 5% GST without ITC and correct its tax filings.
• Case 2 – Hotel Restaurant
  A five-star hotel with declared room tariff above threshold can still charge 18% GST with ITC on restaurant services. This is legitimate because the premises fall under the statutory definition of “specified premises”.

Compliance Checklist for Restaurants

Restaurants must act quickly to align with the clarified rule.

✅ Audit GST rate mapping in POS systems for dine-in, takeaway, cloud kitchens, and catering.
✅ Correct invoices and GSTR-1 entries if misclassification was done earlier.
✅ Educate franchisees and partners to avoid confusion in chain operations.
✅ Reconcile ITC claims—if wrongly availed under 18%, prepare for reversal with interest under Section 50 CGST Act.
✅ Watch for CBIC circulars for formal legal backing.

FAQs

Q1: What exactly is a “specified premises”?
It refers to premises like hotels, inns, guest houses, clubs, or similar establishments with declared tariff above notified thresholds, not stand-alone restaurants.

Q2: Why was this clarification needed?
Because some restaurants were misusing the category to avail ITC and charge higher tax.

Q3: Can catering businesses opt for 18% with ITC?
No, catering remains under the 5% without ITC slab unless linked with specified premises.

Q4: Will the Council issue a notification?
Yes, CBIC will release an official circular and possibly amend definitions to align interpretation.

Conclusion

The GST Council’s clarification on “specified premises” is a course correction for the restaurant industry. By disallowing stand-alone restaurants from self-tagging into the 18% category, it:

• Simplifies billing and compliance,
• Protects customers from overcharging, and
• Prevents misuse of ITC.

For restaurant owners, the message is clear: stick to 5% without ITC unless your premises clearly qualify under law. The sooner businesses align, the fewer compliance headaches they’ll face.

Audit your billing systems today, reverse wrongful ITC claims if any, and train your staff. Customers deserve clarity, and GST law now ensures it.