Tourism is a big part of India’s economy. In fact, in 2016, international tourists spent 22.2 billion U.S. dollars in India. Since the goods and services tax law launched in 2017, new tax rates stand to affect what visitors pay for their trips. Whether you run a tourism business or you’re traveling for work, it’s helpful to know the impact of GST on tourism in terms of prices on everything from flights to hotel rooms.
Tourism Taxes Before and After GST
Before the GST regime launched, your tourism business had to pay a wide variety of taxes. At the state level, there was the value-added tax, luxury tax, and entertainment tax. Then, the central government charged its own taxes, including excise duty, central state tax, customs duty, and service tax. Sometimes, these taxes were charged on a value that included other taxes — something that’s called cascading taxes.
The goods and services tax regime subsumed all of those taxes and replaced it with a single tax: the GST. This eliminates the tax-on-tax effect and lowers the final rate for many tourism services, which means that you can offer lower prices to your customers in many cases.
Restaurants and the GST
The restaurant industry has seen some upheaval since the GST launched in 2017. At first, the tax rates were set at 18% for restaurants with air conditioning or liquor licences, and 12% for other restaurants. At that time, you could also use the input tax credit to offset your tax bill.
In November of 2017, the GST Council changed the GST rates for restaurants. If you run a restaurant located inside a hotel where rooms are priced at Rs 7,500 or higher, your tax rate stayed at 18%, and you can still use the ITC. If you run any other type of restaurant, however, your tax rate is 5%, with no ITC benefit. This should result in lower food bills — but without the ITC, you may need to build up greater cash reserves before buying new equipment or expanding your business.
Hotel Taxes Under GST
The hotel industry has also experienced changing tax rates under GST. As of July 2018, the GST rates are based on nightly room rates:
₹999 and lower: 5%
₹7,500 and higher: 28%
These taxes are based on the declared tariff of your hotel rooms, which is the rate list that you submit to the government. However, if your room rates change prices throughout the year and land in a different tax rate slab, this means that you might still need to charge the original GST rate.
The declared tariff issue has caused confusion among customers and problems in the hotel industry. Industry associations are pressuring the GST Council to allow hotels to charge GST based on the invoice price, rather than the declared tariff. If that happens, you would be able to charge tax based on the current room rate, which helps you account for seasonal and demand-based price changes.
GST Rates for Transportation
The GST’s effect on the transportation sector has been minor, with most areas seeing small changes. Air travel tax rates depend on the flight class. For travelers taking economy-class flights, the tax rate dropped from 6% before GST to 5% after GST. Taxes on business-class flights rose from 9% to 12%.
If you’re traveling by bus or non-AC trains, you don’t need to pay GST, as these services are exempt. For first-class trains and air-conditioned cars, the tax rate rose slightly from 4.5% to 5%. Taxes on taxis dropped from 6% to 5%.
For many businesses in the tourism industry, the GST law stands to lower prices and bring in more customers. If your company’s taxes have risen, it’s a good idea to stay up to date, since the GST Council continues to adjust tax rates, which could affect your pricing down the road.