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Goods and Services Tax or GST was implemented in India in 2017 and has made a huge difference to the taxation structure. Any entity providing services that falls in the accommodation, food and beverage services category has to pay GST for hospitality services. When it comes to accommodation, be it a luxury hotel or a small homestay, no exemption is provided for GST on hotel rooms.

Compared to the pre-GST period, numerous services have been added to the sections which come under GST on the hospitality industry. Some of them are:

  • A hotel restaurant serving food in the hotel room

  • Laundry services

  • Tourist cab services

  • Wellness and personal grooming services like a salon, gym etc.

  • Services related to foreign exchange of currency

Let us look at the effects and changes brought by the GST on hotel rooms and other hospitality services.

Taxes Applicable on Hotel Rooms Before GST Regime

In the pre-GST period, like any other sector in the Indian economy, the hospitality industry was liable to pay multiple taxes including VAT (Value Added Tax), luxury tax, and service tax. In the VAT regime, the end cost was high because the end consumer had to pay tax-on-tax. Since central taxes like service tax, could not be set off against state taxes like VAT and vice-versa, the hospitality service providers too didn’t get any input tax credit on the taxes they paid.

Here is an outlook on the taxes applicable on hospitality services before GST

Category

Abatements, if any

Tax applicable

Hotel room tariff under Rs. 1000

100%

NIL

Hotel room tariff above Rs. 1000

40%

Service tax - 9%

VAT(12% to 14.5%)

Luxury tax

Restaurants

60%

Service tax - 6%

VAT(12% to 14.5%)

Luxury tax

Bundled services like social functions

30%

Service tax - 10.5%

VAT(12% to 14.5%)

Current GST Rate on Hotel Rooms

When the tax rates are standardised and become uniform under GST, the hospitality sector started reaping the benefits of it. The GST for hotel rooms now includes bundled services like complimentary breakfast, laundry services, etc. Also, the tax input credit is easy and better utilised.

Take a look at the current GST rates on hotel rooms

Category

GST Rate

Hotel rooms under Rs. 1,000

NIL

Hotel rooms above Rs. 1,000 and under Rs. 7,500

12%

Hotel rooms above Rs. 7,500

18%

Comparison of GST Rates on Hotel Rooms Pre & Post-GST Regime

Let us check out the difference in charges of hotel rooms in the VAT regime and GST period.

Category

Pre-GST Tax

Post-GST Tax

Hotel rooms under Rs. 1,000

NIL

NIL

Hotel rooms above Rs. 1,000 and under Rs. 2,500

12%

12%

Hotel rooms above Rs. 2,500 and under Rs. 7,500

18%

12%

Hotel rooms above Rs. 7,500

28%

18%

GST on hotel rooms ideally results in a decreased final cost for users as well as improved revenues for the government. It will attract more overseas tourists and could help the industry’s growth in the long run.

Advantages of GST on Hotel Rooms

  • Avoided complicated tax calculations: The hotel room’s GST rate is easy to calculate and understand for the common man. In the VAT regime, the complicated tax on tax was sometimes difficult to wrap their heads around. They struggled to understand how the VAT, entertainment tax, luxury tax, etc., were levied.

The GST on hotel rooms appears as a single charge on the bill, and it would give them more clarity on the tax they are paying.

  • Easy to administrate: Goods and Services Tax abolished several other taxes and thus reduced the procedural steps of taxation. Hence, it gave more chances to streamline the taxation process.

  • Enhanced customer service: The GST on hospitality services ensures better customer service since the computations are made easy through a single tax rate. So, the checking-out process at hotels and restaurants became hassle-free resulting in improved service quality. No more impatient waiting for bills!

  • Input tax availability: With the GST implementation, it is easier to claim and avail ITC or Input Tax Credit for the hospitality service providers. They get full ITC on their inputs. Under the GST regime, it is simple to adjust the tax paid on inputs like raw edibles for food, cleaning supplies, etc, against the output without any complications.

Disadvantages of GST on Hotel Rooms

  • Insignificant cost reduction: Certain states like Maharashtra had different taxation structures in the pre-GST period, and hence, even after the implementation of GST on hospitality services, there was only a minimal cost reduction. During the pre-GST period the rooms were taxed at 19% and Food & Beverage (F&B) items at 18.5%. The GST on hotel rooms in Maharashtra is 18%, which doesn’t show any significant changes.

  • Burden of technological nuances: GST has very clear guidelines on how each industry needs to manage its accounts and file returns. To manage them efficiently, businesses should become technologically advanced. The process of this adaptation may increase the technological burden and cost of compliance.

  • Disparity with Asian counterparts: India is a global tourism hotspot and emerging as a stronger player in recent times. But, the cost disparity compared to its Asian counterparts like Japan and Singapore is not negligible. They have lower tax rates for their hospitality sector i.e, 8% for Japan and 7% for Singapore. This is a distinct disadvantage for India in the world hospitality sector.

Conclusion

GST on hotel rooms has simplified and rationalised the tax structure and rates. It significantly reduced the end cost for consumers and also introduced provisions for Income Tax Credit. Improved regulations of GST on the hospitality industry in India has made it easier for both the service providers and customers.

In 2021, the hospitality services sector showed a growth of 100.3% year on year in Revenue Per Available Room (RevPAR). The hospitality and tourism industry in India is expected to rise from Rs. 15.24 lakh crore in 2017 to Rs. 32.05 lakh crore by 2028. To sum it up, it is evident that the Indian hospitality industry is witnessing growth in the post-GST era.  

GST on Hotel Rooms FAQs

  • ✔️Is GST charged on hotel rooms?

     Yes, GST is charged on hotel rooms with tariffs above Rs. 1000.

  • ✔️What is the rate of GST on hotel rooms with a tariff of Rs. 5000?

     The GST rate on hotel rooms with a tariff of Rs. 5000 is 12%.

  • ✔️Which GST rate applies to room upgrades provided to the customer at a discounted rate?

    If the declared tariff of the accommodation provided by way of upgrade is Rs. 10,000, but the amount charged is Rs. 8,000, then GST would be levied at 18% on Rs. 8,000.