Introduction: The Goods and Services Tax (GST) is a crucial indirect tax system in India that affects various industries, including the hotel and tourism sector. A reduction in GST rates can have a significant impact on this industry, influencing customer affordability, domestic and international competitiveness, investment opportunities, job creation, and overall economic growth. In this article, we will explore the implications of a GST rate cut on the hotel and tourism industry in India.
1. Cost Reduction for Customers : One of the immediate effects of a GST rate cut in the hotel and tourism industry is a reduction in costs for customers. Lower taxes on hotel stays, food and beverage services, and other tourism-related activities make travel and accommodation more affordable. This affordability can stimulate demand and potentially increase occupancy rates for hotels. Customers can save money on their travel expenses, which may encourage them to explore more destinations within the country.
2. Boost to Domestic Tourism : By lowering the GST rate, the government can promote domestic tourism. Reduced taxes make domestic travel destinations more attractive and competitive compared to international destinations. Indian travelers are more likely to opt for domestic vacations when the prices are relatively lower due to the reduced GST rate. This boost in domestic tourism can positively impact the local economies of tourist destinations across the country, leading to increased revenue and employment opportunities.
3. Increased Competitiveness: A lower GST rate enhances the competitiveness of the Indian hotel and tourism industry globally. International tourists often consider tax rates when choosing a travel destination. With reduced taxes, India becomes more appealing compared to countries with higher tax burdens. The affordability factor resulting from a GST rate cut can attract a larger number of international tourists, thus boosting foreign exchange earnings and improving the overall balance of payments.
4. Enhanced Investment Opportunities: A rate cut in GST can incentivize entrepreneurs and investors to invest in the hotel and tourism sector. Lower taxes create a conducive environment for the development of new properties, expansion of existing ones, and improvement of infrastructure. This increased investment leads to the growth of the industry, creates job opportunities, and contributes to the overall economic development of the country.
5. Job Creation: The hotel and tourism industry is a significant source of employment. A GST rate cut can spur industry growth, leading to increased demand for various roles within the sector. More tourists, higher occupancy rates, and expanded infrastructure can generate job opportunities in areas such as hotel management, travel agencies, tour operators, hospitality services, and transportation. The employment generated by the industry can contribute to reducing unemployment and improving the livelihoods of many individuals.
6. Potential Revenue Impact : While a GST rate cut may lead to short-term revenue loss for the government, it can be offset by increased consumption and economic activity in the long run. A thriving hotel and tourism industry contributes to economic growth, generates tax revenue from other sources such as transportation, entertainment, and shopping, and benefits related sectors. The potential revenue impact needs to be carefully analyzed by policymakers to ensure a balance between tax rates and industry growth.
Transaction Value Per Unit (Rs) Per Day | GST
Amendments made with 47th GST Council Meeting held on 28th & 29th June 2022 and come into effect from 18-07-2022.
| Sl. No. | Room Rent | GST Rate |
| 1 | INR 1 to Rs. 1,000/- per day | 12% GST from 18th July 2022 |
| 2 | Rs. 1,001/- to Rs. 7500/- per day | 12% GST | Heading 9963 (Accommodation, food and beverage services) – “(i) Supply of “hotel accommodation” having a value of supply of a unit of accommodation above one thousand rupees but less than or equal to seven thousand five hundred rupees per unit per day or equivalent.” |
| 3 | INR 7501 per day or more | 18% |
Amendments made with 14th GST Council Meeting held on 18th & 19th May 2017 and come into effect from 01-07-2017.
| Sl. No. | Room Rent | GST Rate |
| 1 | Rs. 0 to Rs. 1,000/- per day | Exempt |
| 2 | Rs. 1,001/- to Rs. 2,499/- per day | 12% with full ITC |
| 3 | Rs. 2,500/- to Rs, 4,999/- per day | 18% with full ITC |
| 4 | Rs. 5,000/- and above per day | 28% with full ITC |
Amendment made through the 37th GST Council Meeting held on 20-09-2019 and came into effect from 01-10-2019.
| Sl. No. | Room Rent | GST Rate |
| 1 | Rs. 0/- to Rs. 1,000/- per day | Exempt |
| 2 | Rs. 1,001/- to Rs. 7,500/- per day | 12% with full ITC |
| 3 | Rs. 7,501/- and above per day | 18% with full ITC |
While the GST rate on catering services other than in premises have been done 5% without ITC from the accommodation of INR 7501 and is mandatory for all the catering services.
Restaurant Industry
Amendment made through 14th GST Council Meeting held on 18th & 19th May, 2017 and came into effect from 01-07-2017.
| Sl. No. | Room Rent | GST Rate |
| 1 | Restaurants not having facility of air-conditioning or central heating at any time during the year | 12% |
| 2 | Restaurants having facility of air-conditioning or central heating at any time during the year | 18% |
| 4 | Other than above | 18% |
Amendments made through 23rd GST Council Meetings held on 10-11-2017 come into effect from 15-11-2017.
| Sl. No. | Room Rent | GST Rate |
| 1 | All stand-alone restaurants irrespective of air conditioned or otherwise | 5% GST without ITC |
| 2 | Food parcels (or takeaways) | 5% GST without ITC |
| 3 | Restaurants in hotel premises having room tariff of less than Rs 7500 per unit per day | 5% GST 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% GST with full ITC |
| 5 | Outdoor catering | 18% GST with full ITC |
Amendment proposed in the 37th GST Council Meeting dated 20-09-2019 came into action from 01-10-2019.
| Sl. No. | Room Rent | GST Rate |
| 1 | Outdoor catering services other than in premises having daily tariff of unit of accommodation of Rs 7501 | 5% GST without ITC |
| 2 | Catering in premises with daily tariff of unit of accommodation is Rs 7501 and above | 18% with ITC |
| 3 | Indian Railways Catering and Tourism Corporation Ltd. or their licensees/ Indian Railways | 5% GST without ITC |
The final Applicable rate structure for restaurants are as follows:
| Sl. No. | Room Rent | GST Rate | Chapter/ Section/ Heading |
| 1 | All stand-alone restaurants irrespective of air-conditioned otherwise | 5% GST without ITC | Heading 9963(Accommodation, food and beverage services) |
| 2 | Food parcels (or takeaways) | 5% GST without ITC | |
| 3 | Restaurants in hotel premises having room tariff of less than Rs 7500 per unit per day | 5% GST 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% GST with full ITC | |
| 5 | Indian Railways Catering and Tourism Corporation Ltd. or their licensees / Indian Railways | 5% GST without ITC | |
| 5 | Outdoor catering services other than in premises having daily tariff of unit of accommodation of Rs 7501 | 5% GST without ITC | |
| 6 | Catering in premises with daily tariff of unit of accommodation is Rs 7501 and above | 18% with ITC |
Conclusion: A GST rate cut in the hotel and tourism industry can have far-reaching implications. It improves affordability for customers, boosts domestic tourism, enhances international competitiveness, and creates investment and employment opportunities. Additionally, a thriving industry contributes to overall economic growth and generates tax revenue from various sources. However, it is crucial to strike a balance between tax rates and revenue generation to ensure the long-term sustainability of the industry while benefiting both businesses and customers.
Author Bio
sir, can we opt for 5% GST rate (without ITC) for restaurant services and 12% GST Rate (with ITC) for lodging service
Awesome Article for Good Knowledge.