GST on Hospitality Industry

The Indian Hospitality Industry is expected to host nearly 30.5 billion foreign tourist arrivals by 2028, leading to the generation of more than USD 59 billion in revenue. At the same time, domestic travellers are also stimulating this industry, especially in the post-pandemic landscape. It is estimated that India’s tourism sector shall grow at a CAGR of 6.7% and hit a valuation of an impressive USD 488 billion economies by 2029.

Taxation Before GST

Given the lion’s share of the sector’s contribution towards the Indian GDP, there was a pressing need for standardizing the tax structure levied on the industry. Before the introduction of GST, hospitality units had to pay varied taxes in the form of VAT, service tax, luxury tax, etc.

Plus, it was further complicated with different tax rates for F&B services and tax on room tariff, bundled services, etc. Typically, the applicable taxes were broadly in the following range:

Tax on Room Tariff (exceeding Rs. 1,000)

Service tax: 15% (with an abatement of 40%, the effective rate was 9%)
VAT: 12 to 14.5%
Luxury tax: 4 to 12% depending on the state

Hotels also levied a service charge, but as clarified from time to time, it is not a tax component.

Tax on F&B Bills

Service tax: 6% effective rate after 60% abatement.
VAT: 12 to 14.5%

GST on Hotel Rooms and Other Services

After the introduction of GST in 2017 (and subsequent modification in 2019), the GST on hotel rooms, inns, campsites, inns, etc. were a factor of the type and level of service, room rent per day, and star rating.

Accordingly, the GST on hotel rooms is as follows:

Nature of Service	Particulars	Taxable Amount	Tax Rate Applicable
Hotel Accommodation	Declared Room Tariff	Up to Rs. 1,000	0%
		Between Rs. 1,001 and Rs. 7,500	12%
		More than Rs. 7,500	18%
Restaurant Service	Room Tariff is less than Rs. 7,500/-	Base Bill Value	5%
Restaurant Service	Room Tariff is more than Rs. 7,500/-	Base Bill Value	18%
Outdoor Catering Services	Room Tariff is less than Rs. 7,500/-	Base Bill Value	5%
Outdoor Catering Services	Room Tariff is more than Rs. 7,500/-	Base Bill Value	18%
Additional Services	Supply of items or bundled services for events hosted on the premises	Base Bill Value	18%

Impact of GST on Hotel Rooms

GST, without any doubt, added to the administrative ease of handling the tax liability of a hospitality establishment, which improved compliance and generated revenue to the Government. However, its greatest contribution was the clarity that it offered to the end consumers and operators. In some aspects, it also translated into savings for the consumers,

To get a better idea of the impact of GST on hotel rooms, the following are a few tabulated comparisons of the different combinations of bills:

Tax on Basic Room with Tariff less than Rs. 7,500/-

Particulars	Amount Before GST	Amount After GST
Room Tariff	Rs. 2,700/-	Rs. 2,700/-
Luxury Tax (10% as in Maharashtra)	Rs. 270/-	-
Service Tax @ 9%	Rs. 243/-	-
GST @ 12%	-	Rs. 324/-
TOTAL BILL	Rs. 3,213/-	Rs. 3,024/-

Savings of Rs. 189/-

Tax on Basic Room with Complimentary Breakfast (Tariff less than Rs. 7,500/-)

Particulars	Amount Before GST	Amount After GST
Room Tariff	Rs. 2,200/-	Rs. 2,700/-
Complimentary Breakfast Charge	Rs. 500/-	Rs. 500/-
Luxury Tax (10% as in Maharashtra)	Rs. 220/-	-
Service Tax @ 9%	Rs. 198/-	-
VAT @ 14.5% on food	Rs. 73/-	-
GST @ 12%	-	Rs. 324/-
TOTAL BILL	Rs. 3,191/-	Rs. 3,024/-

Savings of Rs. 167/-

Tax on Basic Room with Tariff more than Rs. 7,500/-

Particulars	Amount Before GST	Amount After GST
Room Tariff	Rs. 8,000/-	Rs. 8,000/-
Luxury Tax (10% as in Maharashtra)	Rs. 800/-	-
Service Tax @ 9%	Rs. 720/-	-
GST @ 18%	-	Rs. 1,440/-
TOTAL BILL	Rs. 9,520/-	Rs. 9,440/-

Savings of Rs. 80/-

Tax on Basic Room with Complimentary Breakfast (Tariff more than Rs. 7,500/-)

Particulars	Amount Before GST	Amount After GST
Room Tariff	Rs. 8,000/-	Rs. 8,000/-
Complimentary Breakfast Charge	Rs. 2,500/-	Rs. 2,500/-
Luxury Tax (10% as in Maharashtra)	Rs. 800/-	-
Service Tax @ 9%	Rs. 720/-	-
VAT @ 14.5% on food	Rs. 363/-	-
GST @ 18%	-	Rs. 1890/-
TOTAL BILL	Rs. 12,383/-	Rs. 12,390/-

Applicability of Input Tax as a Component of GST on Hotel Rooms

Source

While consumers can save on their final bill amount, operators can avail input tax credit (ITC), which allows them to claim the credit of the GST paid during the purchase of goods and services to improve their business. In the pre-GST period, the tax paid on such inputs could not be adjusted against the outputs.

Now, hoteliers can claim relief under ITC not only for the consumable items, such as raw edibles, vegetables, fruits, etc. but can also raise it for:

Cleaning, repairs, and maintenance of the accommodation.
Infrastructure, like furniture, HVAC, lifts, etc.
Immovable interior decor and decorative items.
Crockery, kitchen appliances, cutlery, etc. for running kitchen.
Overall business expenses on insurance expense, bank charges, etc.

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Final Thoughts

With so many well-rounded changes, GST on hotel rooms acts as a breath of fresh air by streamlining taxation. From generating revenue for the Government to curbing operational losses to introducing affordability to consumers, it is clearly a step in the right direction.