By 2028, the travel and hospitality sectors in India are expected to grow rapidly. The most important point to remember, though, is that business travel has played a major role in this industry’s expansion and will do so in the future. The introduction of GST on hotel rooms has also contributed to the growth of this industry by combining taxes and lowering consumer prices, which reduces the costs that come with doing business. Let’s explore how companies can benefit most from GST on hotel rooms.
To know how the adoption of GST changed the hotel business, let’s study the following taxes imposed before and after the implementation of GST:
Pre-GST Rate on Hotel Rooms
Under the previous VAT regime, the hotel industry, like every other sector in the Indian economy, was required to pay various taxes, including service tax, luxury tax, and VAT. A hotel was liable for 15% service tax if the room rate exceeded Rs. 1,000.
The tariff value was subject to a 40% abatement, which resulted in a 9% effective service tax rate. In addition, there would be the value-added tax (which varies from 12% to 14.5%) and the luxury tax to pay.
The restaurants were eligible for a 60% abatement, so the effective rate of service tax was 6% on F&B bills in addition to VAT (12% to 14.5%). Bills for bundled services, such as marriages and lectures, were eligible for a 30% tax abatement.
The final cost increased due to the cascading effect of the VAT regime, where the consumer ultimately paid a tax on tax. Because central taxes, such as service tax, could not be offset against state taxes (VAT) or vice versa, hoteliers and other hospitality-related companies were not eligible for an input tax credit on the taxes they paid.
Post-GST Rate on Hotel Room
The country’s hotel business obviously benefited from an umbrella tax regime that combined all other taxes into a single tax structure with the introduction of the Goods and Services Tax. It drastically improved the previous indirect tax system’s uniformity. Additionally, it helped in removing the cascading effect that raised the final user’s cost under the pre-GST rate on hotel rooms.
It also indicates that companies that send employees on business trips and hoteliers will have an easier time claiming the input tax credit under GST than they would have under the previous system.
To assist you in better understanding the advantages of GST for business travelers, the following comparative charts show the taxes levied on the services provided by hotels under both the pre- and post-rate of GST on hotel rooms:
| Particulars | Pre-GST (Basic Room) | Post-GST (Basic Room) |
|---|---|---|
|
Room Tariff |
Rs.4000 |
Rs.4000 |
|
Complimentary Breakfast |
- |
- |
|
Luxury Tax @15% (New Delhi) |
Rs.600 |
- |
|
Service Tax @9% |
Rs.360 |
- |
|
GST @12% |
- |
Rs.480 |
|
Total |
Rs.4960 |
Rs.4480 |
| Particulars | Pre-GST (Luxury Room) | Post-GST (Luxury Room) |
|---|---|---|
|
Room Tariff |
Rs.8500 |
Rs.8500 |
|
Complimentary Breakfast |
Rs.2000 |
Rs.2000 |
|
Luxury Tax @15% (New Delhi) |
Rs.1575 |
- |
|
Service Tax @9% |
Rs.945 |
- |
|
GST @12% |
- |
Rs.1890 |
|
Total |
Rs.13020 |
Rs.12390 |
GST on Hotel Rooms
| Particulars | Post-GST (Basic Room) |
|---|---|
|
Room Tariff |
Rs.4000 |
|
Complimentary Breakfast |
- |
|
Luxury Tax @15% (New Delhi) |
Rs.600 |
| Particulars | Post-GST (Basic Room) |
|---|---|
|
Room Tariff |
Rs.4000 |
|
Complimentary Breakfast |
- |
|
Luxury Tax @15% (New Delhi) |
Rs.600 |
|
Service Tax @9% |
Rs.360 |
Declared Tariff or Invoice Cost for Hotel Room GST Rate
There has been a lot of confusion about the taxes imposed on hotel tariffs ever since the GST was implemented. The previous law stipulated that hotels would be subject to GST rates based on the “declared tariff.” The rate that a hotel sets for a room in accordance with government guidelines is known as the declared tariff. But the issue started when the business traveler booked hotels at a discount through a corporate management website. On the original or declared tariff of the room, the hotels were charging GST. Business travelers were paying more taxes as a result of this discrepancy. As a result, the GST Council decided to pre-set the rates during its 28th meeting in July 2018. GST on hotel rooms was decided to be charged on the “transaction value” rather than the “declared tariff,” which will reduce the tax’s impact on travelers and their businesses.
You can also read 10 Important Benefits of Filing ITR (Income tax Return)
Hotel GST Rate for Cancellations
Bookings for hotel rooms typically result in a booking fee. Depending on the hotel’s terms and conditions, this fee may or may not be refundable. However, the hotel charges a cancellation fee and pays back the remaining sum if the business traveler needs to cancel the reservation due to a change in plans.
What is the GST on the hotel cancellation fee in such a case? Regardless of the rate of GST on the hotel rooms booking, SAC 99979 specifies that the appropriate GST rate will be 18%.
Input tax credit on GST on hotel Rooms
Since hotels supply taxable services, the place of supply is important. The state in which the hotel is located is the place of supply, regardless of whether the business travel company is registered in a different state. That means that SGST and CGST must be charged by the hotels. This additionally indicates that if the hotel is in the same state as the business traveler or the state where the company is registered, the company may be eligible to claim input tax credit on SGST and CGST.
For any products and services the hotel supplies, the company is eligible to claim input tax credits. However, ITC on a separate service is not allowed if the hotel has a restaurant within its premises and charges 5% for it.
Conclusion
Since hotel room GST directly affects the public, it has become a significant topic. A lower rate of GST on hotel rooms increases customer affordability, encourages domestic travel, increases global competitiveness, and generates investment and job prospects. A successful industry also adds to the growth of the global economy and produces a variety of tax revenues. For the industry to remain successful over the long run and continue to serve companies and consumers alike, a balance between tax rates and revenue generation must be maintained.
Frequently Asked Questions (FAQ)
All amenities, such as a refrigerator, furniture, and air conditioning, that are included in an accommodation are included in the tariff. However, this tariff excludes any discount that may be applied to the accommodation for determining the GST liability of the hotel.
- Service Tax: 15%
- VAT: 12% to 14.5%
- Luxurious Tax: 4%–12%
The declared tariff of the room would be used to calculate the GST rate, and the amount so determined would apply to the entire amount, which would include the cost of any additional facilities like an additional bed in the room.
Residential properties are exempt from the GST. Additionally, lodging facilities such as hotels, inns, or guest homes with daily rents under Rs 1,000 were excluded. The government ordered in July 2022 to lift the GST exemption for lodging establishments that charge up to Rs 1,000 per day, such as hotels and guest homes.
The GST on hotel room rates should be reduced, according to OYO Founder and CEO Ritesh Agarwal’s plans for the Union Budget 2023. The GST Council decided to apply 12% GST on hotel rooms that cost more than Rs 1000 on July 18 of last year.
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