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How is GST charged on Hotel Services?

Safder Alam 
Updated on 01 June 2020

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1. Introduction

Hospitality industries and Indian tourism are one of the most competitive and steadily growing industries in the country. And With the motto “Atithi Devo Bhava” ('the guest is equivalent to God') Indian tourism industry was expected to reap great benefits under the GST regime. As per research study called “India 2019 Annual Research”, which shows that travel and tourism in India contributed 9.2% of the GDP and provided 42.7 million jobs or 8.00% of the total employment.

Total contribution by travel and tourism sector to India GDP is expected to increase to US$ 275.2 billion in 2025. Travel and tourism is the third largest foreign exchange earner for India. (Source Equitymaster.com)

But, due to recent pandemic of COVID-19, one of the worst affected industries is hospitality business i.e. hotel and restaurant business.

We will look at the effects of the GST on the hospitality and tourism industry.

2. Provision Under GST LAW.

  • As per sub-clause (a) of Entry no 5 of Schedule II of CGST Act, 2017, “renting of immovable property” hotel accommodation Supply is considered as supply of service.
  • Supply of food is treated as composite supply of service, as per sub Para (b) of Entry No 6 of Schedule II of CGST Act, 2017, “supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (other than alcoholic liquor for human consumption), where such supply or service is for cash, deferred payment or other valuable consideration.”
  • As per Notification 11/2017-Central Tax (Rate) dated 28/06/2017, of Sr. no 7 under heading 9963, as amended by notification 20/2019-Centran Tax (Rate) dated 30/09/2019, prescribed rate of tax on accommodation, food and beverage service, which can be summarized as under:

GST Rates for Hotels based on Tariff (w.e.f. 01/10/2019)

    

S.no.

Tariff per Night

GST Rate

1

Up to Rs. 1,000

Nil

2

Between Rs. 1001 to Rs. 7500

12%

3

Rs. 7501 and above

18%

GST Rates for Restaurant Service

    

Particulars

Condition

Restaurant Services

Restaurant is part of Specified premises Entry no 7(vi)

18% with Input Tax Credit

Restaurant is not part of Specified premises Entry no 7(ii)

5% without Input Tax Credit

GST Rates for Outdoor Catering Services

    

Particulars

Condition

Outdoor Catering Services

Restaurant is part of Specified premises Entry no 7(vi)

18% with Input Tax Credit

Restaurant is not part of Specified premises Entry no 7(iv) and (v)

5% without Input Tax Credit

“Restaurant service”  means supply, by way of or as part of any service, of goods, being food or any other article for human consumption or any drink, provided by a restaurant, eating joint including mess, canteen, whether for consumption on or away from the premises where such food or any other article for human consumption or drink is supplied.

“Outdoor catering”  means supply, by way of or as part of any service, of goods, being food or any other article for human consumption or any drink, at Exhibition Halls, Events, Conferences, Marriage Halls and other outdoor or indoor functions that are event based and occasional in nature.

“Declared tariff”  means charges for all amenities provided in the unit of accommodation (given on rent for stay) like furniture, air conditioner, refrigerators or any other amenities, but without excluding any discount offered on the published charges for such unit.

“Specified premises”  means premises providing “hotel accommodation” services having declared tariff of any unit of accommodation above seven thousand five hundred rupees per unit per day or equivalent.

“Hotel accommodation”  means supply, by way of accommodation in hotels, inns, guest houses, clubs, campsites or other commercial places meant for residential or lodging purposes including the supply of time share usage rights by way of accommodation.

3. Input Tax Credit

Whether for a restaurant services provider other than specified premises, is it compulsory to charge 5% tax or they can opt or they can opt to pay GST @ 18% tax and claim Input Tax Credit?

As held in the case of coffee Day Global Ltd. AAR No: KAR ADRG 21/2018 dated 21/08/2018 that, “The Applicant is not entitled to pay the GST @ 18% with input tax credit as the services being offered by the Applicant are classified under a heading attracting GST @ 5%, without input tax credit.”

ITC on car for passenger transfer:

If the hotel has purchased a car for pick up and drop of their guest from airport or railway station, whether Input Tax Credit can be claimed on such car?

AS per blocked credit section 17(5)(a), Input Tax Credit is allowed, which read as under:

Section (17)(5)(a) motor vehicles for the transport of person having approved seating capacity of not more than thirteen persons (including the driver), except when they are used for making the following taxable supplies, namely: -

  1. XXXXXX
  2. Transportation of passengers; or
  3. XXXXXXX
 

From the above, it is very much clear that, ITC on car used for transportation of passenger will be available, if the same is passed under commercial use or to say, taxi passing.

4. Relevant issues on Hotel Room Tariff: -

Q. Will GST be charged on actual tariff or declared tariff for accommodation services?

A. Declared or published Tariff is relevant only for determining of the Tax Rate Slab. GST will be payable on actual amount charged (transaction value).

Q. What will be the GST rate if cost goes up (more than declared tariff) owing to additional bed?

A. GST Rate would be determined according to declared tariff for the room, and GST at the rate so determined would be levied on the entire amount charged from the customer. For example, if the declared tariff is Rs. 7000/- per unit per day but the amount charged from the customer on account of extra bed Rs. 8000/-. GST Shall be charged @ 18% on Rs. 8000/-.

Q. Where will the declared tariff be published?

A. Tariff declared anywhere, say on the website through which business is being procured or printed on tariff card or displayed at the reception will be declared tariff. In case different tariff is declared at different places, highest of such declared tariff shall be the declared tariff for the purpose of levy of GST.

Q.  Same room may have different room tariff at different times depending on season or flow of tourist as per dynamic pricing. Which rate to be used then?

A. In case of different tariff is declared for different seasons or periods of the year, the tariff declared for the season in which the service of accommodation is provided shall apply.

Q.  If Tariff Changes between booking and actual usage, which rate will be used?

A. Declared Tariff at the time of supply of the service would apply.

Q. GST at what rate would be levied if an upgrade is provided to the customers as a lower rate?

A. If declared tariff of the accommodation provided by way of upgrade is Rs. 10000/-, but the amount charged is Rs. 7000/-, then GST would be levied @18% on Rs. 7000/-

 

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