From 1 July 2025, Punjab’s sales tax rules for hotels and restaurants will be applied more broadly under the Punjab Sales Tax on Services Act, 2012. The revised framework removes ambiguity around tax coverage, introduces incentives for digital payments, and sets clearer compliance expectations for businesses operating in the hospitality sector.
This article breaks down the updated rules in a business-friendly way.
Which Services Are Now Taxable?
Under the revised law, all services are treated as taxable by default, unless they are specifically exempted under Schedule-I of the Act. Hotel stays and restaurant services are no longer subject to interpretation—they are fully taxable.
Importantly, no minimum turnover limit applies. Even small hotels, guest houses, and eateries must register for sales tax and charge it on their services.
Sales Tax on Accommodation Services
5% Concessional Rate for Small Operators
A reduced sales tax rate of 5% is available to certain hotels, motels, and guest houses that meet all of the following criteria:
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The business is non-corporate
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It does not operate as a franchise
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It is not part of a hotel chain
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The property has fewer than 20 rooms
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No input tax adjustment is claimed at this rate
When the Standard Rate Applies
If an accommodation provider fails to meet even one of the above conditions, the service will be subject to the standard sales tax rate of 16%.
Taxation of Restaurant and Food Services
Sales tax applies to nearly all food service providers, including:
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Restaurants, cafés, and diners
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Coffee shops and beverage outlets
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Ice cream and dessert parlors
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Food huts and roadside eateries
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Resorts offering dining services
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Deras and similar food establishments
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Providers of cooked or ready-to-eat meals
Lower Tax Rate for Digital Payments
To encourage cashless transactions, the government has introduced a 5% sales tax rate (without input tax adjustment) when payments are received through approved digital modes, such as:
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Debit cards
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Credit cards
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Mobile wallet applications
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QR code–based payment systems
Cash Payments
Any payment received in cash or non-digital form will attract the standard 16% sales tax.
Compliance Essentials for Businesses
Hospitality businesses should take note of the following key points:
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Sales tax registration is mandatory, regardless of business size
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The default sales tax rate is 16%, unless a concession applies
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Sales tax must be charged at the time the service is rendered
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In certain transactions, tax may be withheld by the customer under the Punjab Sales Tax on Services (Withholding) Rules, 2015
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Withholding rules differ from normal sales tax procedures and require careful compliance
Final Note
The updated sales tax regime aims to improve documentation, widen the tax net, and promote digital payment habits within Punjab’s hospitality industry. Businesses should review their billing systems, payment channels, and tax registration status well before July 2025 to avoid compliance issues.
Failing to apply the correct tax treatment or delaying registration could expose businesses to penalties, audits, and unnecessary legal complications. Early preparation is the best way to stay compliant under the new rules.