Introduction

The domestic hotel industry is estimated to be around $1.8 billion. There was a huge increase in the hotel industry after the introduction of the system of online booking.

India ranks 18th on the list of business travel and it will be in top 5 very soon according to The World Travel and Tourism Council. The hotel industry alone is expected to generate Hotels 2.3 million jobs while the jobs that will be generated under the segment of Travel Agents/Tour Operators will be around 0.66 million.

The  Foreign Direct Investment (FDI) in this segment is of supreme importance as the tourism and hospitality sector is among the top 10 sectors in India to attract the FDI. According to the data released by Department of Industrial Policy and Promotion (DIPP), the hotel and tourism sector attracted around US$ 9.2 billion of FDI between April 2000 and March 2016.

As per Ministry of Tourism, foreign tourists’ arrival (FTAs) on e-tourist visa increased 56.6 per cent year-on-year in December 2016. In 2016, the e-visa facility was extended to 161 countries from 113 previously and foreign tourist arrivals on e-visas more than doubled to 10,79,696 from 4,45,300 in 2015.

Current Tax Rate on Hotel Industry

The tax regime under the current tax rate system with respect to the rates for the state of Madhya Pradesh is discussed. While the rates may vary subject to the state.

The taxability on luxuries (services) provided in a Hotel can be summarized as under:- §

  •  The owners of Hotels are liable to pay tax @10% on the turnover.
  • Rs.10 lacs of turnover per annum is the threshold limit for being liable to pay tax.
  • If the rate of charges per day is Rs. 3000/-  or less, there is no payment of Luxury Tax on hoteliers.
  • There is a exemption from payment of Luxury Tax for a period of 5 years or 8 years depending upon the location of the Hotel for the Hotels newly formed.
  • There is no Service Tax on services provided in a Hotel.

Tax liability on Hotels under GST regime

  • Luxury Tax on services provided in a Hotel is leviable @10% on receipt basis.
  • All services under GST regime are to be taxed @18% on the transaction value of supply of services while the present rate of Service Tax is 15%.
  • Hotels and lodges charging per day tariff of Rs 2,000 will be exempt from GST. Rate for hotels with tariff of Rs 2,000 to 7,500 per day would be 18 per cent while GST rates for hotels charging Rs 7,500 and more tariff per day for room will have to pay 28 per cent.
  • The threshold limit under GST regime on supply of services is aggregate turnover of Rs.20 lacs per annum.
  • The supplier of Hotel services will be entitled to input tax rebate on the inputs, capital goods and input services used by them in the course or furtherance of business.
  • Alcoholic liquor for human consumption being a super luxury, it may attract a higher rate in the interest of state revenue.
  • No Input Tax credit will be available to sale of alcoholic liquor for human consumption as it is outside the GST regime.

Conclusion

  • Under GST regime, the hoteliers will pay Tax for Services @18% while on average they are paying tax @10% under State Acts.
  • The benefit of exemptions from luxury tax under the current structure for a room where daily tariff charges are less than the specified amout which is  Rs.3,000/- in the State of M.P will not be given under the GST regime.

In case you are confused about GST as a business owner, feel free to consult the GST experts at LegalRaasta. You can get comprehensive assistance on GST Registration online and GST Return. You can also use our GST software for doing end-to-end GST compliance.