Introduction: How GST is Changing the Hospitality Landscape

Imagine you’re planning a trip to Mumbai. You find two hotels—Sunrise Inn, a budget-friendly stay, and Royal Grandeur, a luxury five-star property. While both offer excellent hospitality, their taxation structures are vastly different due to the Goods and Services Tax (GST). Before GST, hotels had to navigate a complicated system of service tax, luxury tax, and VAT, with rates differing across states. With the introduction of GST, India’s hospitality sector witnessed a major transformation, streamlining taxation and improving transparency.

In this blog, we will dive deep into GST on the hotel industry in India, covering tax rates, compliance, benefits, challenges, and how businesses can optimize their tax strategies.

GST Applicability on Hotels

Hotels, lodges, guest houses, and inns come under the purview of GST based on their room tariffs. The GST regime has replaced multiple indirect taxes, ensuring a uniform structure across states. Any hotel with an annual turnover exceeding Rs. 20 lakh (Rs. 10 lakh in special category states) must register under GST.

GST Rates on Hotel Accommodation

For example, if a guest books a Rs. 10,000 per night room at Royal Grandeur, the applicable GST is 18% (Rs. 1,800 per night). However, travelers at Sunrise Inn paying Rs. 900 per night enjoy a GST exemption.

GST on Food and Beverages in Hotels

Hotels serving food and beverages attract different GST rates based on service type:

For example, a guest at Royal Grandeur ordering a meal worth Rs. 2,000 in an AC restaurant with alcohol will pay Rs. 360 as GST (18%).

GST on Banquet Halls and Conference Services

Many hotels offer banquet halls for weddings, corporate events, and conferences. The applicable GST rate is 18% on venue rentals, while additional services like catering, decoration, and audio-visual equipment are taxed at their respective rates.

For instance, if a corporate client books a conference hall for Rs. 5 lakh, the GST will be Rs. 90,000 (18%).

Input Tax Credit (ITC) for Hotels

Hotels can claim ITC on GST paid for furniture, equipment, maintenance, and supplies. However, restaurants opting for the 5% concessional tax rate are not eligible for ITC.

Example:

If Royal Grandeur purchases furniture worth Rs. 5 lakh and pays 18% GST (Rs. 90,000), it can claim this amount as ITC, reducing its tax liability.

However, if its in-house restaurant opts for the 5% GST rate, it cannot claim ITC on raw materials like vegetables and meat.

GST Compliance Requirements for Hotels

Hotels must comply with the following GST regulations:

• GST Registration: Mandatory for hotels with an annual turnover exceeding Rs. 20 lakh (Rs. 10 lakh in special category states).

• GST Invoicing: Proper tax invoices must be issued for all transactions.

• GST Return Filing: Regular filing of GSTR-1 (outward supplies), GSTR-3B (summary returns), and annual returns is required.

• E-Way Bill Compliance: Required for goods transportation exceeding Rs. 50,000 in value.

Impact of GST on the Hotel Industry

Positive Impact:

• Simplified Tax Structure: GST replaced multiple indirect taxes, reducing complexity.

• Transparency & Uniformity: Standardized rates across states bring pricing clarity.

• Boost to Tourism: Rationalized tax rates make accommodations more competitive.

• ITC Benefits: Helps hotels lower operational costs by availing input tax credits.

Challenges Faced by the Industry:

• Higher Tax Burden on Luxury Hotels: 18% GST on premium hotels increases costs.

• No ITC for Restaurants Under 5% GST: Restaurants operating in hotels lose tax credit benefits.

• Complex Compliance: Filing multiple GST returns and adhering to state-specific regulations add operational challenges.

How Hotels Can Optimize GST Compliance

To minimize tax liability and stay compliant, hotels can:

• Classify services correctly to apply the right GST rates.

• Ensure proper invoicing to avoid compliance issues.

• Claim ITC efficiently to reduce operational costs.

• Consult tax professionals for error-free GST filing and compliance.

Conclusion

The hotel industry in India has greatly benefited from GST, with simplified taxation and standardized rates. However, higher tax rates on luxury hotels and ITC restrictions on restaurants pose challenges. To navigate these complexities, seeking expert guidance is essential.

For seamless GST compliance and tax optimization, partner with TwoTax—your trusted advisor in the hospitality sector. Contact us today to ensure your hotel business maximizes tax benefits while staying compliant with GST regulations.