The implementation of GST in India in 2017 aimed to unify the indirect taxation system by bringing multiple taxes under one umbrella. The GST rate on hotels with tariffs above Rs.7,500 was initially set at 28% and on rooms with tariffs between Rs.1,000 to Rs.7,500 at 18%. However, in January 2018, the GST Council reduced the rate for rooms with tariffs between Rs.1,000 to Rs.2,500 to 12% and for rooms with tariffs between Rs.2,500 to Rs.7,500 to 18%.
The introduction of GST has been beneficial for the hospitality and tourism industry in multiple ways. Firstly, the GST has replaced multiple taxes like VAT, service tax and luxury tax, resulting in a reduction of taxes paid by consumers. This has led to lower costs for customers, making travel and hospitality more affordable, boosting demand and revenue for businesses in the industry.
Secondly, the GST has harmonised the taxation system, bringing uniformity in tax rates and simplifying tax compliance procedures for businesses. This has reduced business transaction costs, such as hiring tax experts and accountants, and has made it easier for businesses to operate across states.
Lastly, the GST has enabled businesses to claim input tax credits (ITC) on the taxes paid on goods and services used in their operations. This has reduced the overall tax burden on the hospitality and tourism industry, allowing businesses to reinvest in their operations, improve quality of services and ultimately drive growth in the industry.
However, there are still some challenges faced by the industry. The high GST rate on luxury hotels with tariffs above Rs.7,500 has led to a slowdown in demand for luxury accommodation. Additionally, the GST compliance process can be complex and time-consuming, especially for small and medium-sized enterprises in the industry, which may not have the resources to hire tax experts.
Latest Update | Highlights
Recent developments in the Indian hotel industry include changes to room tariffs and tax rates, as well as a Supreme Court ruling on GST levy for lease/rent payments. The GST council has decided to eliminate numerous exemptions and increase rates on goods and services, with a plan to standardize tax rates to 2-3% after five years. Meanwhile, hotels charging up to INR 1000 per day will be taxed at 12%. The Chennai Hotels Association has also requested a filing deadline extension due to the COVID-19 pandemic. The introduction of the GST has consolidated multiple taxes for the hotel and restaurant industry, though it has also brought new challenges. With the hotel industry offering both lodging and restaurant services, the rate structure has undergone various amendments since the implementation of GST laws. Keep reading for a comprehensive overview of changes in GST rates for hotels and restaurants.
Transaction Value Per Unit (Rs) Per Day | GST
| Sl. No. | Room Rent | GST Rate |
| 1 | INR 1 to Rs. 1,000/- per day | 12% GST from 18th July 2022 |
| 2 | Rs. 1,001/- to Rs. 7500/- per day | 12% GST | Heading 9963The GST council has recently made changes to the tax rates for accommodation, food, and beverage services. According to the new regulations, the supply of “hotel accommodation” valued above INR 1000 but less than or equal to INR 7500 per unit per day or equivalent will be taxed. |
| 3 | INR 7501 per day or more | 18% |
The 14th GST Council Meeting held on 18th & 19th May 2017 brought about several amendments that came into effect from 01-07-2017.
| Sl. No. | Room Rent | GST Rate |
| 1 | Rs. 0 to Rs. 1,000/- per day | Exempt |
| 2 | Rs. 1,001/- to Rs. 2,499/- per day | 12% with full ITC |
| 3 | Rs. 2,500/- to Rs, 4,999/- per day | 18% with full ITC |
| 4 | Rs. 5,000/- and above per day | 28% with full ITC |
During the 37th GST Council Meeting held on 20th September 2019, several amendments were made to the GST rates.
| Sl. No. | Room Rent | GST Rate |
| 1 | Rs. 0/- to Rs. 1,000/- per day | Exempt |
| 2 | Rs. 1,001/- to Rs. 7,500/- per day | 12% with full ITC |
| 3 | Rs. 7,501/- and above per day | 18% with full ITC |
The GST rate for catering services, except those provided on-premises, has been set at 5% without Input Tax Credit (ITC) for accommodations priced at INR 7501 and above and is now mandatory for all catering services.
The Pros of GST
Administrative Ease
The implementation of GST has abolished several other taxes, leading to a reduction in procedural steps and offering more opportunities to streamline the taxation process. With a unified tax system in place, the hospitality industry can now focus on enhancing customer experiences and improving overall efficiency.
Clarity for Consumers
In the pre-GST era, it was often challenging for customers to differentiate between a Value Added Tax and an entertainment tax on their bills. However, with the introduction of GST, customers can now see a single charge on their bills, offering them a clear picture of the tax they are paying. This will enhance transparency and build trust with customers.
Improved Quality of Service
Checking out of a hotel or restaurant used to be a hassle with complicated tax calculations taking up valuable time. But with just one tax to compute, the checking-out process at hotels and restaurants has now become easier, offering a significant perk to the hospitality industry. This will result in better customer experiences and higher levels of customer satisfaction.
Availability of Input Tax
The tourism and hospitality industry can now claim and avail input tax credit (ITC) with ease. Before GST, tax paid on inputs such as raw edibles for food, cleaning supplies, etc., could not be adjusted against the output without complications. But with the introduction of GST, the process has become smoother, offering the hospitality industry full ITC on their inputs. This will lead to cost savings and improved profitability for businesses in the sector.
