Gst on Hotels and Restaurant Industry

GST ON HOTELS & RESTAURANT INDUSTRY

  • The tourism industry incorporates a clearly noticeable contribution to the Indian Economy, and also the contribution is going to be higher within the near future. Hotels and restaurants are a significant part of this industry and without them, the industry can’t survive.
  • It provides employment opportunities to a large population and various micro; small and medium entrepreneurs are obsessed with it. That’s why the govt can’t ignore the issues the industry is facing. Services provided by the hotel could be a taxable service in GST.
  • The place of supply, in case of such supplies, shall be the state/union territory wherein the hotel is situated, irrespective of whether the guest is a registered person or not and has GSTIN of some other state.
  • Therefore, a hotel must charge SGST and CGST always. The guest can claim ITC of SGST and CGST, being paid in respect of hotel service, within the same state.

EXAMPLE

  • A registered person in Delhi opts for a business trip to Delhi. In such a case, the hotel in Delhi will charge SGST and CGST and issued a bill, mentioning the GSTIN of the guest. Thus the registered person can take ITC of GST paid.
  • Now suppose the same person resides in a hotel in Mumbai for a business trip. The hotel in Mumbai charged SGST and CGST and issued a bill with guest GSTIN. Since the businessman isn’t registered in Mumbai, he won’t be eligible to take an input tax credit of such GST paid.

IMPACT OF GST ON THE HOTEL INDUSTRY

  • Even the hospitality industry was vulnerable to pay multiple taxes and handling them was a tedious task Just like every other sector, A hotel with a space tariff of over ₹1,000 was chargeable for 15% Service tax Before the inception of GST,
  • Further, after the abatement, the value was dropped at somewhere around 8-10%. That’s not all. After that, VAT together with luxury tax was applied to the said value.
  • Service tax was charged at an effective rate of 6% on the bills generated. And this is often apart from the VAT. However, after the introduction of GST regime, under the hospitality industry, things became certain cumbersome free and services which were earlier taxed separately, would now be taxed as a bundle.
  • Not to mention, it’s reduced the end-user costs. Meaning, the industry is now likely to draw in more overseas tourists, improve the government’s revenues, and boost the industry’s growth.

Talking about the hotel GST rate, it’s levied based on the tariff.

All read on : GST Impact on the Real Estate industry 

GST SLABS FOR HOTELS

  • The GST rate isn’t based on the Star rating of a hotel. It solely depends on the value charged.
    Thus, the ultimate rate structure for hotels applicable as on date could also be summed up as follows:
S. NO. RENT OF SINGLE ROOM APPLICABLE GST RATE GOVERNING CODE
1. RS. 0/- TO RS. 1,000/- PER DAY 12% GST from 18th July 2022

HEADING 9963

(ACCOMMODATION, FOOD AND BEVERAGE SERVICES)

2. RS. 1,001/- TO RS. 7,500/- PER DAY 12% GST WITH FULL ITC | Heading 9963
(Accommodation,   food   and beverage services)
3. RS. 7,501/- AND ABOVE PER DAY 18% WITH FULL ITC
  • CBIC has decided that the room rent received by “sarais” or inns run by religious and philanthropic organisations will not be charged GST.
  • After confusion over the GST on room rent, CBIC clarified this. The GST Council decided in June that there would be a 12 percent GST on all hotel room bookings that cost less than Rs 1000 per day.

RESTAURANT INDUSTRY

S. NO. RENT OF SINGLE ROOM APPLICABLE GST RATE GOVERNING CODE
1 ALL STAND-ALONE RESTAURANTS WHETHER AIR CONDITIONED OR NOT 5% WITHOUT ITC

 

 

 

 

 

HEADING 9963

(ACCOMMODATION, FOOD AND BEVERAGE SERVICES)

2 FOOD PARCELS 5% WITHOUT ITC
3 RESTAURANTS IN HOTEL PREMISES HAVING RENT OF EACH ROOM LESS THAN RS. 7500/DAY 5% WITHOUT ITC
4 RESTAURANTS IN HOTEL PREMISES HAVING ROOM TARIFF OF RS 7500 AND ABOVE PER UNIT PER DAY (EVEN FOR A SINGLE ROOM) 18% WITH ITC
5 IRCTC OR THEIR LICENSEES / INDIAN RAILWAYS 5% WITHOUT ITC
5 OUTDOOR CATERING SERVICES OTHER THAN IN PREMISES HAVING RENT OF EACH ROOM MORE THAN RS 7500/DAY. 5% WITHOUT ITC
6 CATERING IN PREMISES HAVING RENT OF EACH ROOM MORE THAN RS 7500/DAY. 18% WITH ITC

Thus, the GST rate applicable on restaurants services are as follows –

RENTING OF BANQUET HALL AND CATERING SERVICES

  • Under banquet hall services, the first service provided is renting of a premises for conducting a happening. it’s going to be with or without accommodation/ food facilities.
  • However, under restaurant and hotel services the fundamental service provided is food and accommodation respectively.
  • In case banquet hall services are provided together with food and accommodation services, the identical shall be considered as composite supply of services and also the following SAC shall be applicable on such services:
CHAPTER/ SECTION/ HEADING DESCRIPTION OF SERVICE CGST SGST/ UTGST IGST ITC

 

 

 

 

 

 

HEADING 9963

(ACCOMMODATION, FOOD AND BEVERAGE SERVICES)

OUTDOOR CATERING SERVICES OTHER THAN IN PREMISES HAVING RENT OF EACH ROOM MORE THAN RS 7500/DAY. 2.50% 2.50% 5.00% NOT AVAILABLE
(V) COMPOSITE SUPPLY OF “OUTDOOR CATERING” TOGETHER WITH RENTING OF PREMISES (INCLUDING HOTEL, CONVENTION CENTER, CLUB, PANDAL, SHAMIANA OR ANY OTHER PLACE, SPECIALLY ARRANGED, HAVING RENT OF EACH ROOM MORE THAN RS 7500/DAY. 2.50% 2.50% 5.00% NOT AVAILABLE

 

E-COMMERCE OPERATORS

E-Commerce Operators or online platforms like Oyo, Swiggy, Zomato, etc., became a very important part of this industry. They have substantially contributed within the industry.

As a part of their service, they bring the order of the customers and in return, charge commission from them. These transactions can be summarized as below –

  • GST on hotel tariff or restaurant bill shall be leviable at the rates prescribed rates.
  • GST @ 18% be levied on commission paid to e-commerce operators.

REVERSE CHARGE MECHANISM ON HOTEL INDUSTRY

It is to be noted that the hotel and restaurant industry has been exempted from Reverse Charge Mechanism under section 9(4) of the CGST Act, 2017, and hence are not required to apply the same.

According to the section 13 of the CGST Act, 2017, supply’s time for the services is going to be the earliest of the subsequent –

  • Date of issue of invoice by the supplier, provide the invoice has been issued within the prescribed time period or the date of receipt of payment, whichever is earlier; or
  • The date on which the service is provided, provided the invoice has not been issued within the prescribed period or the date on which the payment is received, whichever is earlier.
  • Date on which the recipient represents the receipt of services in his account’s book, just in case where provisions of clause (a) or clause (b) don’t seem to be applicable:

TIME OF SUPPLY OF SERVICE

  • The time of supply for hotel and restaurant services are going to be as following:

If invoice is generated:

  • Time, when the payment is recorded in books.
  • when Time, when the invoice has been issued, or
  • Time, when the service has been rendered

If invoice is not generated

  • Time, when the payment is received or
  • When Time, when the service has been rendered
  • Time, when the payment is recorded in books.

PLACE OF SUPPLY

  • Section 10(3) of the IGST Act, 2017 stated that within the case of the hotel industry the place of supply are going to be the situation of immovable property and within the case of restaurant location where the services are literally performed.
  • Such a provision introduced certain issues and hence the same has been discussed below -Bottom of Form

SUPPLIER AND RECIPIENT IN SEPARATE STATES

  • In such cases, the placement of the hotel is considered because the place of supply, and CGST and regime GST are going to be levied and not IGST.
  • Additionally, the recipient of service won’t be able to avail ITC of the tax paid on such transactions as GST paid in state isn’t eligible in state GST of the recipient.

SEZ UNITS

  • As per Section 7(5) of the IGST Act, 2017 Place of supply SEZ Units shall be treated to be a supply of products or services or both within the course of inter-State trade or commerce.” Furthermore,
  • it has been clarified that the services of short-term conferencing, accommodation, banqueting etc., being provided to a SEZ developer or a SEZ unit, shall be considered as an Inter-State supply and shall be chargeable to IGST and not to CGST and SGST.

GST ON CANCELLATION CHARGES

  • Mostly, all the hotels take some portion of the amount as booking amount from the customer, at the time of booking of rooms. Such an amount may or may not be 100% refundable as per the conditions prescribed.
  • If the guest cancels the booking, the hotel charges a cancellation fee and refund the remaining amount, if any.
  • In such case, the cancellation fees shall be chargeable to GST under SAC 99979 and GST be levied @ 18% irrespective of the rate applicable on the hotel booking.

GST will apply to hotel, train, and/or ticket cancellation fees.

  • GST is not applicable to the recovery of notice pay. But, cancellation fees for bookings made for hotels, flights, trains, etc. would be charged at the same GST rate that would be in force for the primary service.

REGISTRATION REQUIREMENT

  • A hotelier is compulsorily required to take up registration under GST, where their turnover exceeds the prescribed limit or Rs. 20/10 lakhs.
  • If a hotel is registered on e-commerce operators like Goibibo or MakeMyTrip and turnover is less then specified limit then also he’s NOT required to get registered.

ONLINE BOOKING FROM THIRD PARTY PORTAL

  • It has become quite common for hotels to induce their clients from online portals like Goibibo and MakeMyTrip. If the turnover of hotelier is less than 20/10 lakhs and is additionally not registered voluntarily, then the e-commerce operator (Goibibo) is required to collect GST on transactions made through it.
  • Where the hotelier is registered under GST, then he himself would be liable to charge GST from its customer. It is also provided, that the e-commerce operator is susceptible to deduct TCS @ 1% from the booking amount received for the hotelier.

INPUT TAX CREDIT (ITC)

  • The hotel is eligible to claim ITC in respect of all goods and services used for providing their service.
  • However, where the hotel has its restaurant and is charging GST @ 5% then ITC shall not be allowed in respect of such restaurant services.

CONCLUSION

  • The industry even with all the issues are heading toward a balanced condition and currently it’s recovering from damages caused by Corona.
  • However, it’s still important and playing vital role in Indian Economy. The industry after much uncertainty has finally reached a stage where we will say that the stabilization of rates has come.
  • However, the Corona Pandemic has created havoc within the industry and if proper incentives aren’t accorded to the sector, it’d witness a collapse which will result in huge losses to the whole economy, and not just a specific sector.

Hope this GST FAQ article cleared most of your apprehensions regarding GST and has made you able to extract the simplest out of this new regime!

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Rajput Jain & Associates is a Chartered Accountants firm, with it's headquarter situated at New Delhi (the capital of India). The firm has been set up by a group of young, enthusiastic, highly skilled and motivated professionals who have taken experience from top consulting firms and are extensively experienced in their chosen fields has providing a wide array of Accounting, Auditing, Taxation, Assurance and Business advisory services to various clients and their stakeholders. Rajput jain & Associates, a professional firm, offers its clients a full range of services, To serve better and to bring bucket of services under one roof, the firm has merged with it various Chartered Accountancy firms pioneer in diversified fields. We have associates all over India in big cities. All our offices are well equipped with latest technological support with updated reference materials. We have a large team of professionals other than our Core Team members to meet the requirements of our prospective clients including the existing ones. However, considering our commitment towards high quality services to our clients, our team keeps on growing with more and more associates having strong professional background with good exposure in the related areas of responsibility.

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