2018-06-15 02:06:37GST CenterEnglishhttps://quickbooks.intuit.com/in/resources/in_qrc/uploads/2018/06/Two-men-shake-hands-after-discussing-how-GST-affects-hospitality-industry.jpghttps://quickbooks.intuit.com/in/resources/gst-center/gst-on-hotels/GST on Hotels: All You Need To Know%%sep%% %%sitename%%

GST On Hotels: All You Need To Know

10 min read

India’s Goods and Services Tax (GST) has a big impact on the hospitality industry. Whether you run a tiny guesthouse or a large luxury hotel, the law changes how you handle monthly accounting.

By staying up-to-date about current tax rates and possible available credits, you can reduce your tax liability and keep customers happy with lower prices.

Hospitality Industry Before GST

Hospitality industry was liable to pay a host of indirect taxes to both Central and State Government under the former indirect taxation regime. This was just like any other sector in the Indian economy.

The underlying challenge with such a regime was that there existed a host of taxes like Excise Duty,Service Tax and VAT. Furthermore, each tax had its respective return and compliance. Moreover, it was not possible to avail input tax credit.

For instance, a hotel or hospitality business first had to pay VAT, Luxury Tax and Entertainment Tax to the State Government. Then, the Central Government charged other set of taxes such as Excise Duty, Service Tax and Customs Duty.

This meant that such a business had to pay VAT to the respective State Government on a value that already included Excise Duty. Hence, the hospitality business had no alternative to avail an input tax credit with each state levying its own set of tax rates .

This was because the load of central taxes could not be set off against state taxes like VAT or vice-versa.

Try QuickBooks Invoicing & Accounting Software –  30 Days Free Trial 

Example

[/vc_column_text]

Let’s try to understand the scenario that existed for hospitality and tourism industry under indirect tax structure before GST.

Hotels

If a traveler booked a basic room in a hotel in New Delhi with a room tariff exceeding Rs 1,000, he was bound to pay Luxury Tax @ 15% and Service Tax @ 15%. Further, an abatement of 40% was allowed on the tariff value, thus bringing the effective rate of service tax down to 9%. Also, VAT ranging between 12 to 14.5% would be levied on the tariff value.

Restaurants

In case of restaurants, an abatement of 60% was allowed which meant that the effective Service tax rate was 5.6% (Service Tax @ 14%) on the F&B bills. And VAT ranged between 12% to 14.5% along with a service charge of 10%.

The applicable Service Tax rate from June 1, 2016 was 15% which included Swachh Bharat Cess (SBC) of 0.5% and Krishi Kalyan Cess (KKC) rate 0.5%. This increased the Service Tax from 14% to 15%.

Bundled Services By Hotels

On invoices for bundled services by hotels and resorts (such as weddings, seminars, etc.), an abatement of 30% was allowed.

Thus, the effect of such a tax regime was cascading. It compelled the end user to pay tax on tax, thereby increasing the final cost. Moreover, hoteliers and hospitality businesses did not get any input tax credit on the taxes they paid.

Hospitality Industry After GST

With the implementation of GST, the hospitality industry in India certainly benefited from the privileges of a single tax regime. Such a tax structure aims to bring uniformity in the indirect tax system along with subsuming multiple taxes.

Further, this helps in reducing the cascading tax effect that increased the final cost for the end consumer in the previous indirect tax regime. .

This means that hoteliers and restaurant owners would now be able to avail and better utilize input tax credit. However, this was not possible under the previous indirect tax regime.

So, let’s take a look at the rates of services under hospitality and tourism sector discussed by the GST Council in it’s 37th meeting.

Rate Changes in 37th GST Council Meeting for Hospitality and Tourism Industry

The GST Council in its 37th GST Council meeting, held on September 20, 2019, recommended changes in GST rates in respect of hotel and tourism industry. These changes are as follows:

Rate Cuts on Hotel Accommodation Service

Transaction Value per Unit (in Rs) per DayGST Rate
Rs. 1000 and lessNil
Rs. 1001 to Rs. 750012%
Rs. 7501 and above18%

Catering Service

Type of Catering ServiceDaily Tariff of Unit of AccommodationChanges in GST
Outdoor Catering Services other than in premisesRs. 7501From current 18% GST with ITC to 5% without ITC .

(this rate is mandatory for all kinds of catering)

Catering in premisesRs. 7501 and aboveRemains same at 18% GST with ITC

Rate Changes in 23rd GST Council Meeting for Hospitality and Tourism Industry

The GST Council in its 23rd GST Council meeting, held on November 10, 2017, recommended changes in GST rates in respect of hotel and tourism industry. These changes were as follows:

Type of ServiceGST Rate
Standalone restaurants whether air conditioned or otherwise5% GST wIthout ITC
Food parcels or takeaways5% GST without ITC
Restaurants in hotel premises with room tariff of less than Rs. 7,500 per unit per day5% GST without ITC
Restaurants in hotel premises with room tariff of Rs. 7,500 and above per unit per day18% GST with full ITC
Outdoor catering18% GST with full ITC

Rate Changes in 14th GST Council Meeting for Hospitality and Tourism Industry

Type of ServiceGST Rate
Supply of food and drinks in restaurants with no air conditioning, central heating and liquor licence12% GST with full ITC
Renting of hotel with room tariff of Rs. 1000 and above but less than Rs. 2,500 per room per day12% GST with full ITC
Renting of hotel with room tariff of Rs. 2,500 and above but less than Rs. 5,000 per room per day18% GST with full ITC
Bundled service by the way of supply of food or any other article of human consumption or any drink in a premises (such as hotel etc) together with renting of such premises18% GST with full ITC
Supply of food and drinks in restaurants with liquor licence18% GST with full ITC
Supply of food and drinks in restaurants with air conditioning or central heating at any time during the year18% GST with full ITC
Outdoor catering18% GST with full ITC
Supply of food or drinks in air conditioned restaurants in 5 star or above rated hotel28% GST with full ITC
Accomodation in 5 star or above rated hotels with room rent of Rs. 5,000 and above per night per room28% GST with full ITC

Calculation of Tax Under GST Regime and Pre-GST Regime In Case of Hospitality Industry

Let’s try to understand the impact of GST on various suppliers of goods and services associated with the Hospitality industry. Such a tax calculation is also compared with the scenario under indirect tax structure before GST.

Case For A Basic Hotel

Basic Room Before GSTAfter GST
Room TariffRs 4,000Rs 4,000
Luxury Tax (15% as per New Delhi)Rs 600
Service Tax Rate @ 9%Rs 360
GST @ 18%Rs 720
TotalRs 4,960Rs 4,720

Case For Luxury Hotel Room With Complementary Breakfast (Bundled Service)

Basic Room Before GSTAfter GST
Room TariffRs 7,500Rs 7,500
Complimentary BreakfastRs 2,000Rs 2,000
Luxury Tax (15% as per New Delhi)Rs 1,125
Service Tax Rate @ 9%Rs 675
VAT @14.5% On FoodRs 290
GST @ 18%Rs 2,660
TotalRs 11,590Rs 12,160

Case For A Restaurant

Particulars Before GSTAfter GST
Total BillRs 5,000Rs 5,000
Service Charge Rate @ 10%Rs 500Rs 500
Service Tax Rate @ 5.6%Rs 280
– Krishi Kalyan Cess @ 0.2%Rs 10
– Swachh Bharat Cess @ 0.2%Rs 10
VAT @ 14.5%Rs 798
GST @ 18%
– CGST @ 9%
– SGST @ 9%
Rs 495
Rs 495
TotalRs 6,598Rs 6,490

Declared Tariffs vs. Invoice Cost

Since the GST went live, the hotel industry in India came across some confusion relating to room price. The law stated that GST on hotel rooms would be based on the “declared tariff,” or the rates set for each room by the hotels and provided to the government in advance.

But what happened when a customer booked using a discount website like Booking.com? Suppose a hotel has room priced at ₹8000 that attracted a 28% GST. However, the customer found the same room for ₹7400 on a third-party website and assumed the GST would be 18% according to the rate slabs. But since the hotel told the government that the room was priced at ₹8000, it had to charge 28% GST.

This discrepancy increased costs for customers, which caused problems for hotels. As a result, the hotel industry associations in India called for the government to set GST based on the invoice cost rather than the preset rates.

Thus, GST Council in its 28th meeting on July 21, 2018 declared that GST rate slabs on accommodation service would be levied on the basis of “transaction value” in place of “declared tariff value”. This provided considerable relaxation to the hotel industry.

Example

Suppose the declared room tariff is ₹8,000. However, the actual room tariff realized is ₹6,000. In such a case, the GST rate on accommodation would be 18 per cent instead of 28 per cent.

However, the norms for calculating tax in case of restaurants located in the same premise remain unchanged. This means that GST rates for eating in the same hotel restaurant will be based on declared tariff and not value of supply.

What About Hotel Restaurants?

As far as the restaurants located in the same hotel premises are concerned, they have to continue to levy GST rates based on the declared tariff for room instead of vale of supply.

This means that customers would have to pay higher tax rates for eating at the restaurants of the same hotel premises where he has taken a stay.

Example

As per rules, GST rate for restaurants in hotel premises having room tariff of less than ₹7,500 a day will attract GST of 5 per cent without input tax credit. Whereas, room tariff of more than ₹7,500 and above will fall under 18 per cent rate with full input tax credit.

This means the customer will be required to pay GST on food at a rate prescribed for room tariff ₹7500 or above, although the actual room tariff is ₹6,000.

Using Input Tax Credit

One of the biggest benefits of GST is the input tax credit. When you buy supplies and services for your hotel, you pay GST.

With the ITC, you can subtract the taxes that you paid from your GST liability. So if you paid ₹1000 in GST, and you owe ₹1500, your final tax bill is only ₹500.

Since your hotel probably spends a great deal of money on everything from laundry services to new bedding, the ITC can go a long way toward reducing your tax bill.

[/vc_column][/vc_row]

All Topics

 

 

Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

Related Articles

Own a Restaurant? Here's What You Need to Know About the GST

GST for restaurant owners in India, the shift to the GST tax…

Read more

Everything You Need to Know About the Transporter ID

When the government switched to the goods and services tax regime, it…

Read more

Creating GST-Compliant Invoices

How to create GST-compliant invoices in Quickbooks https://quickbooks.intuit.com/in/resources/in_qrc/uploads/2018/04/How-to-create-GST-compliant-invoices-in-Quickbooks.mp4 he data in your…

Read more