India’s GST on hotel rooms is covered under the Goods and Services Tax (GST) Act 2017 and has made a huge difference to the taxation structure of the hospitality industry, be it a luxury hotel or a small guesthouse. Let’s discuss the impact of GST on the Hospitality Industry since the rationalisation of GST. It has included numerous services as compared to the pre-GST period.
Typically today’s hotels provide –
- Rooms and accommodation services
- A Hotel Restaurant serving food in the hotel room.
- Tourist cab services.
- Services related to foreign exchange of currency.
- Event management and renting out the premises for such events as weddings, conferences etc.
- Catering and F&B services.
- Business Centres and support services
- Laundry services
- Wellness and Personal Grooming services like a salon, gym etc.
How should the GST for hotels be calculated?
Rates applicable:
At its 37th GST Council on 20th Sept 2019 meeting, the GST Council recommended rate changes for the tourism and hotel industry. These changes and the impact of GST on the hotel industry can be summed up in the table below:
Rooms and Hotel Accommodation:
|
Unit Transaction Value/day (in Rs) |
Hotel GST tax rate % |
|
Equal to or less than Rs. 1000 |
Nil |
|
Equal to or less than Rs 1001 to 7500 |
12% with eligibility for full ITC (Input Tax Credit) |
|
Equal to or less than Rs 7501 and above |
18% with eligibility for full ITC (Input Tax Credit) |
Also Read: The 38th GST Council Meeting - The Summed up Highlights
Hotel restaurant business:
The present hotel GST rates are indicated in the table below.
|
Business category |
Hotel GST slab rate % |
|
Stand-alone restaurants |
5% and ineligible for input tax credit (ITC). |
|
Hotel restaurants, part of a larger hotel where room tariffs do not exceed Rs 7500 and are declared takeaway restaurants. |
5% with no ITC benefits. |
|
Hotel restaurants that are a part of a larger hotel where room tariffs exceed Rs 7500 and the restaurant is declared a takeaway restaurant. |
18% with ITC benefits. |
|
Having catering services for colleges, schools, offices, hostels etc., on a contract basis. |
5% without ITC facility. |
|
Having outdoor catering services |
18% with ITC facility. |
Tourist Rent a Cab:
In cases where a restaurant or hotel provides its guests more than one service as a mixed goods or services supply, the hotel GST rate slab is interpreted in the 2017 CGST Act Sec 8.
Under Section-2 sub-section-74, when two or more individuals are provided services/goods supplied by the taxpayer as a mixed or combination of services bundle, and the product is not a specified composite supply item, it attracts the highest tax rate.
For Example, consider a hotel offering accommodation that provides free airport drop and pick-up and provides paid inter and intrastate tourist cab services. Since accommodation is the basic product, the customer's entire bill will be charged GST at the highest rate of the accommodation services.
The guide list of GST rates for hotel rooms and services clubbed with accommodation would be as below:
- Rentals on the premises for events will be charged 18% GST with full ITC benefits.
- Currency change and Foreign exchange services will be charged 18% GST with full ITC benefits.
- Food catering services will be charged 18% GST with full ITC benefits.
- Business centre and support services will be charged 18% GST with full ITC benefits.
- Laundry services will be charged 18% GST with full ITC benefits.
- Wellness and Personal Grooming Services will also be charged 18% GST with full ITC benefits.
Pre-GST and the Hospitality Industry:
Before GST was implemented, the Hospitality industry paid indirect taxes on GST on hotel rooms below 2500 INR to both State and Central Governments, unlike the other Indian sectors. Of course, GST compliance was an expensive and cumbersome affair. The tax structure itself was made up of Service Tax, Excise Duty, Value Added Tax (VAT) and more, with each tax having its compliance dates and measures to keep pace with. Plus, ITC credits were unavailable since state and central taxes could not be set off against each other. Thus, the taxpayer landed more tax on taxes than the GST on hotel accommodation in India, which led to increased production and selling costs.
Under the VAT regime, the hospitality industry paid multiple taxes. It also included the luxury tax, VAT and service tax. Furthermore, if the tariff of a room per day exceeded Rs 1,000, the taxpayers had to pay service tax in hotels at 15%. The VAT or Value Added Tax was 12-14.5% to be paid with the luxury tax.
Post-GST, the tariff value was allowed an abatement of 40%, lowering the effective service tax rates to 9%.
In restaurants, the GST on hotel tax meant 60% abatement, with the Food & Beverage (F&B) bills being taxed at a 6% effective service tax rate, plus VAT of 12-14.5%. Bundled services like free airport drops and pickup services, rentals of premises for events, tourist cab and business services etc., faced a reduction of 30%.
Post-GST and the Hospitality Industry:
The GST Act was introduced to rationalise, categorise and standardise the GST on hotels tax structure and rates in 2017. After implementing GST, the hospitality sector has a single tax and reaps the benefits of Input Tax Credits or blocked credits. Multiple taxes were subsumed by the hotel GST, which also provided a single rate when services were bundled together. The cascading VAT tax effect was effectively reduced, reducing final and production costs and selling prices to the customers. Additionally, ITC benefits were given to the restaurant owners and hoteliers.
Consider the below example to compare the hotel GST rate and pre/ post room with GST rates:
|
Details |
Pre GST for hotel rooms Rs |
Post GST on hotel room rent Rs |
|
Tariff on room |
3000 |
3,000 |
|
8% Luxury Charge |
240 |
– |
|
9% Service Tax |
270 |
– |
|
12% GST Tax |
– |
360 |
|
Final Amount |
3510 |
3360 |
Significance of GST on hotel business:
Post the introduction of the GST Act and rates; one can see an effective lowering of the taxes paid by the hospitality sector. The segment also now stands to reap the benefits of utilisation of input tax credit. The uniform and standardised single tax rates have made compliance to GST so much easier while reducing the final costs to the customers. Thus, the hospitality sector can now attract more tourists than ever before. This has also improved government revenues, making the merits of the Central Goods and Services Tax (CGST) Act very significant for the segment’s long term growth.
Now let's consider the example of a hotel room with bundled services. The rates applicable to it in the pre and post GST period are shown below:
|
GST rates for room tariff from October 1st 2019. |
|
|
Tariff/ Night |
GST Rate |
|
Less than Rs.1,000 |
No Tax |
|
More than Rs 1,001 but less than Rs 7,500 |
12% |
|
Equal or greater than Rs 7,501 |
18% |
|
GST rates for room tariff before September 30th 2019. |
|
|
Tariff / Night |
GST Rate |
|
Less than Rs.1,000 |
No Tax |
|
More than Rs.1,000 but less than Rs 2,499.99 |
12% |
|
More than Rs.2,500 but less than Rs 7,499.99 |
18% |
|
Equal to or more than Rs 7,500 |
28% |
The table clearly shows the multiple tax slabs applied until September 30th 2019, and the changes brought in from October 1st 2019, further rationalise the hotel room rates. The above rates are the declared room tariffs generally exhibited in the rate card at the Reception Desk or on the hotel’s website.
The merits of GST on hotel rooms:
Administrative Ease: The single GST tax removes multiple taxes and compliance with several tax rules.
Customer Clarity: Customers struggled to understand how the entertainment tax, VAT, etc., were levied, and taxes breakup. Under the GST regime, the customers have a single rate and a single tax on their bills, clarifying the taxation structure besides paying far lesser taxes.
Improved Service Quality: The hotel can offer better customer service as it has now to compute your bills at a single tax rate. No more hassles at check-out due to multiple taxation doubts!
ITC Availability: The hospitality and tourism industry is now mostly eligible for ITC or input tax credit on their inputs. In the pre-GST era, tax paid on inputs like raw food grains, cleaning supplies, pulses etc., were hard to adjust against the final output as no ITC eligibility was there. The post-GST era has rectified this by providing ITC on inputs.
The demerits of GST on hotel rooms:
Increased Technology: Unlike when service tax was introduced, hotel GST rates envisage accounts management, has clear guidelines, simplified return filing, etc. But businesses must now bear the cost of technology to file returns and maintain accounts, thereby increasing the cost burden of compliance and technology.
Increased Costs in some areas: Due to the different States having their taxation structures, some states like Maharashtra have only a marginal decrease in GST on hotel rooms and prices. Here rooms were taxed at 19% and Food & Beverage (F&B) items at 18.5% pre-GST. The post GST single rate of 18% is minimal, driving higher room tariffs to help the hotels cover the increased technological costs.
Lack of Parity: India is slowly emerging in the area of global tourism and hospitality. But there is no global parity pan Asia in rates and taxes. Singapore, Japan etc., have lower tax rates of 7-8% versus the Indian rates of 18% placing them at a distinct advantage over India.
Also Read: 7 Ways Goods and Service Tax benefits the Economy
Conclusion:
The Indian tourism and h ospitality industries are set to rise from the 2017 figures of Rs1 5.24 lakh crore to the 2028 anticipated figure of Rs.32.05 lakh crore. The GST on hotel has thus, helped simplify, rationalise and harmonise the tax structure and rates. It has also aided in maintaining the provision of ITC, which has helped GST compliance, and in lowering production and final costs to the customers. Easier rules and regulations of GST on hotel accommodation in India has made it easier for both the companies and customers. Therefore, the hospitality industry can see improved compliance and growth in the post-GST era.
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