The Goods and Services Tax Council finalised different GST rates for hotels and restaurants based on their tariffs and turnover, drawing mixed reactions from the industry. 

Hotel Industry like others pay multiple taxes. Service tax rate in current regime is 15% but abatement of 40 % brings it down to an effective rate of 9%.In addition Value Added Tax (ranging between 12 percent to 14.5 percent) and luxury tax applies. Hoteliers and hospitality businesses do not get any input tax credit on the taxes they pay currently, as central taxes cannot be set off against state taxes (VAT) and vice-versa/

The hospitality and restaurant industry is plagued by multiple taxes (Service tax, VAT and luxury tax) in the current indirect tax regime. For hotels with room
tariff in excess of Rs 1,000 and above, service tax is applicable at 60% of room tariff (8.7%) in addition to VAT (ranging between 12 to 14.5%) and luxury tax wherever applicable. In case of restaurants on the F&B bills, service tax is applicable on 40% of the bill or effective rate of 5.8% apart from VAT @ 12 to 14.5%. In case of social functions (marriage, seminars etc.) the applicable service tax rate after 30% abatement is 10.15%. As input credit from central taxes cannot be set-off against VAT liability and vice-versa, this leads to cascading effect.

Many hotels, nowadays, have some sort of dynamic pricing (done manually), which fluctuates depending on demand and supply. Now since the GST also varies depending on the tariff, hotels need to ensure that their billing system or PMS is able to alter the tax as per the pricing of the room across all their distribution channels. The first few months may require some double checking, but PMS software, such as Hotelogix is already GST ready to make the transition trouble free for hotels.

A slight relief to the luxury hotel segment is that the GST on their restaurants has been revised. Initially, the council planned to impose a GST of 28% on the restaurants at luxury and five-star hotels, but after a lot of opposition from the Indian hospitality sector they brought it down to 18%. Thus there wouldn’t be much of a difference to what customers would be paying, if anything it works in the guest’s favour.

Luxury hotels may see a drop in occupancy in the coming months since there would be a significant increase in their pricing, but for the other hotels, it would pretty much be work as usual, apart from just double checking that the GST norms are being followed accurately.

 While budget hotels will attract low — or even nil in the case of those charging less than Rs 1,000 a day for rooms — GST rates, those charging Rs 5,000 and more room tariff per day will have to pay 28 per cent, upsetting many industry experts. Restaurants in such hotels, too, will have to pay 28 per cent GST. 

GST Rates on hotel room tariff’s per day:

S No.

TARIFF

GST RATE

1

UPTO 999

0%

2

1000-2499

12%

3

2500-7499

18%

4

7500 AND ABOVE

28%




 

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