GST in Hotel Industry: How Does it affect you?

Winter is coming! But so are Diwali, Christmas and New Year breaks. And unlike Ned Stark from the Game of Thrones, you don’t need to worry about Winterfell. Instead, you can spend your time doing something much happier, like planning your holidays and enjoying sumptuous meals with family and friends. But, no matter which hotel or restaurant you go to, you will still not be able to escape the dark and cold clutches of an old enemy: the GST. GST in hotel industry may have a considerable impact on your holidays. What you can do to be prepared for it, however, is not be ignorant like John Snow and at least know your enemy well by reading this article!

Why does GST affect my holidays?

India has a robust hotel industry that contributes greatly to tourism and accounts for around 7.5% of the country’s GDP. The nature of commercial activities carried out in hotels and restaurants come under the definition of services and are, thus, liable to taxation.

Under the previous indirect taxation regime, the hospitality sector was subject to various kinds of taxes like Value Added Tax (VAT), service tax and luxury tax. It created tremendous complexities in accounting. Tax rates were also not uniform as they were levied by both, the Central and State governments.

But after 1 July, 2017, hotels and restaurants came under a single tax system called the Goods and Service Tax (GST). Now, hotels all across India are subject to the same tax rates, regardless of the states they are situated in.

Applicability of GST in hotel industry

The entire concept of levying taxes under GST is based upon four slabs: 5%, 12%, 18% and 28%. Hotels and restaurants are categorized with Service Accounting Codes (SAC) depending upon the kinds of services they offer to their guests. On the basis of these services and the amount of tariff that is charged for them, hotels and restaurants are categorized into different tax slabs under GST. The star ratings of hotels and the states where they are situated are immaterial in determining tax to be levied. As far as restaurants and eateries are concerned, GST makes a distinction on certain grounds.

What are the GST rates for hotels?

Under GST, the amount of tax to be levied on hotel accommodation services depends solely upon per-day tariff charged by hotels, regardless of the star-rating of the establishment. From modest budget hotels to luxurious 5-star hotels, GST rates applicable are as follows:

  • Tariff less than Rs. 1,000/day – No GST
  • Tariff between Rs. 1,000/day to Rs. 2,500/day – 12%
  • Tariff between Rs. 2,500/day to Rs. 7,500/day – 18%
  • Tariff above Rs. 7,500/day – 28%

What are the GST rates for restaurants?

As far as restaurants and eateries are concerned, the GST rates applicable to them depend on two factors. First, whether they have air-conditioning and second, whether they serve alcohol or not. For all non-AC restaurants, a flat rate of 12% is levied on food bills. On the other hand, 18% tax is charged on food bills if any restaurant has AC facility (even if it is present in only a part of the restaurant). All places that serve alcohol are charged 18% on bills, regardless of whether they are AC or non-AC restaurants.

One thing that customers must remember is that not all restaurants are eligible to charge GST on their food bills. Restaurants that are not registered CANNOT charge any GST from their customers. One way to check whether a restaurant is registered or not is to observe the bill. A registered restaurant will always mention its GST registration number on it.

What is the GST impact on the hotel industry?

The launch of GST had initially raised concerns from the hospitality sector. Rates were seen to be very high and that had a big impact on India’s tourism industry. However, the government has addressed many concerns raised by various stakeholders to alleviate fears. By making common rates applicable to all hotels, GST has brought some uniformity in the way this sector is taxed. As far as restaurants and eateries are concerned, the government is reportedly going to consider lowering tax rates and making this industry more business-friendly.

So, remember this the next time you book a hotel room or eat out in a restaurant. Knowledge is power, and nobody can deceive you when you are armed with it. Happy vacations!

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