The travel and hospitality industry is one of the most rapidly growing industries in the world and as well as in India. Introducing the Goods and Services Tax( GST) in India, the government has eliminated the cascading tax structure in the travel and hospitality industry and made it simple and uniform across the country. In this article, we’ll provide detailed information on GST for hotels, and how to claim Input Tax Credit (ITC) to reduce your company’s travel budget.

The Indian travel and hospitality industry is said to grow exponentially in the near future. As per the latest data, revenue from the hotel industry is projected to reach 7.6 billion US dollars in 2023 and by the end of 2027, it may touch 10.53 billion US dollars.

The travel and hospitality industry is growing rapidly in post covid-19 world. Business travel and hotels are significant contributors to this industry. The growth in these two components will boost the sector as a whole.

GST For Hotels Room

The introduction of GST for hotels has significantly consolidated all the pre-existed taxes and reduced the costs for customers. Before discussing the hotel GST rate, let us discuss how the imposition of GST has changed and benefitted the hospitality sector. For a better understanding, take a look at the pre-GST for hotels rate and the post-GST for hotels rate.

Pre-GST For Hotels Rate

Before the imposition of the hotel GST rate, the hotel industry was under an indirect tax structure. Several indirect taxes such as VAT, Service Tax and Excise Duty were applied to the industry by the central as well as state governments. The business traveler has to bear these expenses which create an extra burden on the company’s expense books.

Following are a few of the challenges faced by the hospitality sector before imposing Hotel GST rates-

The indirect tax components which were paid by the hotel were Value Added Tax (VAT), Service Tax, and Excise Duty.

The hotels had to pay Value Added Tax, Luxury Tax, and Entertainment Tax to the concerned state government and then Service Tax and Excise Tax to the Central government which was cascading in nature.
Hoteliers had to pay Value Added Tax to the State government as a component of service tax and also as a component of Excise Duty to the Central government. Thus, hoteliers had to pay the same tax twice. The introduction of GST has eliminated this cascading effect.
Each type of tax has its compliances and return procedures. When all the procedures of different taxes are added the procedure becomes more complex and critical.

In GST, there is a provision for claiming Input Tax Credit, which was not present in the pre-GST hotel rate.

Thus, Business travellers, their companies and hoteliers have to pay tax on tax which was cascading in nature. This effect has been broadly eliminated with the imposition of GST.

Post-GST for Hotels Rate

As we already discussed, GST has eliminated all other taxes and made the taxation system uniform throughout the country. Business travellers, their company and hotelier now can claim Input Tax Credit (ITC) through which they can claim the amount of expenses that have already been paid while purchasing the initial services or input services.

Below is the significant benefit of imposing GST on hotel rates-

GST has eliminated all other indirect taxes and made the compliance procedure for hotels simplified and uniform. Nobody has to pay tax on tax.
Before the implementation of GST, the rate of indirect taxes was different for different states. Thus, the rent of hotel rooms varies depending on the state’s tax regime. After the Implementation of GST, the same type of hotel located in different States levy the same tax. This has increased competitiveness among the hotelier and customers are getting better services.
The tax burden on travellers and hoteliers has been reduced to a certain extent. This Ever since the imposition of GST, there has been some confusion related to the taxes levied on room prices. According to the law earlier, GST rates for hotels would be applicable on the “declared tariff”. A declared tariff is the rate of the room set by the hotel based on the directives of the government. However, the problem arose when the business traveller used a corporate management website to book hotels at discounted prices. The hotels were charging GST on the original or declared tariff of the room. Due to this discrepancy, business travellers were paying higher taxes.

In light of this, the GST council, in the 28th meeting in July 2018, decided to pre-set the rates. GST on hotel rooms was decided to be fixed on the “transaction value” rather than the “declared tariff”, thereby reducing the incidence of the tax on the travellers and their companies. Cost-cutting may act as a factor to boost the tourism sector shortly. As per the latest report, the number of travellers is expected to cross 61 million by 2027 in India.

Let’s take a look at the following comparative chart to understand the effect of the implementation of GST on hotel rates-

Charges	Pre-GST (Basic Room)	Post-GST (Basic Room)	Pre-GST (Luxury Room)	Post-GST (Luxury Room)
Room Tariff	INR 3000	INR 3000	INR 8000	INR 8000
Complimentary Breakfast	–	–	INR 1000	INR 1000
Luxury Tax @ 15 % (As per Tax of New Delhi)	INR 450	–	INR 1200	–
Service Tax @ 9%	INR 270	–	INR 720	–
GST	–	INR 360 (@12 %)	–	INR 1440 (@18%)
Total	INR 3720	INR 3360	INR 9920	INR 9440

Here, we can find the significant change in total expenses to be borne by any of the business travelers and their companies.

Hotel GST Rate

Hotels provide lodging and food for their consumers. The rate of taxes at which the hotel charges its customer is decided by the GST council. The rate also depends on the star rating of the hotel and the type of services it offers to its customer.

GST Council amended the GST rate on different products and services for the hotel industry number of times. In the 47th GST council meeting held on 28th and 29th Jun 2022, finance minister Nirmala Sitharam changed the existing hotel GST rate across the country.

The tax rate is based on the rating of the hotel, base room tariff and services provided by the hotel. Below is the list of the latest Hotel GST Rates:

Charges Per Person/Room( Per Night)	Hotel GST Rate
Below INR 100	12%
INR 1000- INR 2499	12%

INR 2500- INR 7499	18%
INR 7500 and above	28%

As per the GST council, the new hotel GST rate is applicable w.e.f 18 Jul 2022.

There are different tax slabs before the latest GST slab came into existence. They are discussed below:

As per the 14th GST council meeting on 18th and 19th May 2017, the GST rate on hotel rooms was as follows:

Base Tariff/Night	Rate of GST	ITC Applicability
INR 1-1000	Exempted	NIL
INR 1001-2499	12%	With full ITC
INR 2500-7499	18%	With full ITC
INR 7500 and above	28%	With full ITC

This GST rate was applicable with effect from 01 Jul 2017.

This rate was also amended in the 37th GST council meeting, held on 20 Sep 2019 and came into existence w.e.f 01 Oct 2019.

As per this, the rate decided was as follows:

Base Room Tariff	Rate of GST
INR 1-1000	Exempted
INR 1001-7499	12% with full ITC
INR 7500 and above	18% with full ITC

How To Calculate GST On Hotel Rooms?

While booking a hotel room certain percentage of the room tariff is levied as tax ( here it is Good and Service Tax). The percentage of tax is decided based on the factors like star rating of the hotel, and the hotel room base tariff. You need to know how to calculate GST on hotel rooms to plan your budget and avoid any confusion when settling any hotel bill.

To calculate GST on hotel rooms you need to the GST rate first. As per the latest data, the GST rate is as follows:

The rate of GST stands in different slabs and they are 5%,12%, 18% and 28%
This GST rate is applicable on the base tariff of the hotel room
The rate of GST depends on the star rating of the hotel.

Let us take a simple illustration to know how to calculate GST on hotel rooms:

If the base tariff of a hotel room is INR 1000 and the applicable GST rate is 12%, then the net amount after adding GST will be = 1000+ {1000X(12/100)}=1000+120 = INR 1120

GST Calculation Formula

Here is the formula that will help you to calculate GST on hotel rooms: Base Room Tariff + { Base Room Tariff X % of GST Applicable)

Total Price = Base Room Tariff + GST amount

GST On Hotel Room Rent Below 1000

In a country like India, most of travellers seek for budget hotels. They must know the GST on hotel room rent below 1000 to plan their budget accordingly.

As per the GST law 2017, there was an exemption on GST for the service provided by a hotel, inn, guest house, etc. under rupees 1000. So, the rate of GST on hotel room rent below 1000 rupees was nil.

But, as per the latest GST council meeting, finance minister Nirmala Sitharaman has announced that there will be a GST rate applicable on hotel rooms below 1000 rupees at the rate of twelve per cent. There will be no exemptions anymore. The new rate will be applicable w.e.f 18th July 2022.

This announcement makes low-budgeted hotels costlier than before and will have an impact on the pockets of poor people.

In this connection, CA Ritesh Mehta told NRHA members,” The GST council decided to justify tax rates by removing numerous GST exemptions and increasing rates on various goods and services. After 5 years of Tax implementation, all exemptions will be eliminated and tax rates standardized to 2-3%.”

Can We Take GST Input On Hotel Bill?

Yes, we can take GST input on hotel bills. Input tax credits (ITCs) are generally available to businesses for GST paid on hotel bills. Using input tax credits for business operations can offset a business’s GST liability on outward supplies. To claim the GST input on hotel bills following conditions are to be fulfilled:

The hotel accommodation expenses must be incurred for business purposes like business meetings, etc. and must be directly related to the business activity of the claiming entity.
The business entity that claims the input credit tax must be GST registered and must have a valid GSTIN number.
The hotel bill should have all the required data to claim input credit tax. The important data which are required are the GSTIN number of the hotel, the rate at which GST has been charged and other required data.

The GST paid as a hotel bill should be mentioned in the purchased data of the business entity.

A Few Drawback Of GST

Though there are several benefits of implementing GST for hotels. The small and budget establishments are the most sufferer. The potential drawback of implementing GST for hotels are discussed below:

Higher Tax Burden

Implementation of Goods and Services Tax has increased the tax burden as most of the hotels work on a thin profit margin. Depending on the type of hotel and the existing tax rate, the tax paid by the hotels may be more than the previous tax structure. This can impact small and budget-friendly hotels.

Higher Room Rents

Increased tax burden may compel hotels to increase their base room tariffs as customers have to expense more pennies than before. Higher rate creates affordability issues for lower and middle-class customers which in turn impact the hospitality and tourism industries.

Complex Tax Structure

There are several tax slabs in GST and the compliance procedure is complex. There are different levels of tax rates for rooms, foods, beverages, entertainment, etc. These complex structures require need higher administrative, technical, and accounting skills. The need for professional assistance increases the operating cost of the hotels.

Compliance Challenges

Goods and Services Tax requires various procedures such as filing tax returns, keeping the record book updated, and meeting the deadline to avert any penalties. These procedures create an extra burden on its day-to-day activities.

The GST has both pros and cons in its place. With both the positive and negative aspects of implementing GST, our country is following the developed nations.

Conclusion

Goods and Service Tax was introduced to minimize the process of complicated and complex tax collection. Implementation of this GST has eliminated the complex indirect tax collection process. The travel and hospitality industry are growing by leaps and bounds, and so is the Indian economy.

This makes the hotel sector more reliable and transparent, more competitive and provides better services to the customers. The lower GST rates, compared to different indirect taxes such as Value Added Tax, Excise Duty, and Service Tax is more budget-friendly for poor and

middle-class travellers.

The provision to claim input tax credit helps businesses to lower their operational costs and thus the whole business ecosystem becomes more business-friendly.

Frequently Asked Questions (FAQs)

What is the GST rate for hotel room rent?

There is different GST rate available in the market according to GST council. This rates are ratified time to time. As per the latest GST council meeting, the GST rates applicable are 12% for the rooms below 1000 rupees and INR 1001-2499, 18% for the rooms between INR 2500 – INR 7499, and 28% for all the luxury rooms above INR 7500.

Is GST required for small hotel?

Yes, for each and every business entity and service provider need to register its business for GST. Services provided by the hotels is taxable under GST. So, even a small hotel should register for GSTIN number and charge SGST and CGST as per the location of its services.

Is GST applicable on hotel room exemption?

As per the GST law 2017, hotel, inn, guest house, etc. couldn’t claim GST for its services provided to the customer under Rs 1000/- per day per person. So, the rate of GST payable was zero.

However, in recent GST council meeting, the rate has been increased to 12% from its previous zero percent GST rate. So, hotels, inn, restaurants, guest houses, etc. can claim GST under below 1000 rupees services provided to its customers.

Is GST applicable on guest house rent?

Yes, GST is applicable on guest house rent. As per the latest policy, GST will be applicable even if somebody rents his residential property to a registered person. This policy stands valid from 18th July 2022.

Can we claim GST on restaurant bills?

There are different categories under GST with ITC claim, without ITC claim. Restaurants fall under the 5% GST rate without ITC claim. So, GST can’t be claimed on restaurant bills. The rate depends on the location of the restaurants.

GST For Hotels Industry & Its Impact