GST Dossier for Hotels and Restaurants

The Tourism and Hospitality Industry in India, with its tremendous employment opportunities and is a big source of foreign exchange for India, is one of the major growth drivers in the service sector. As a result of its potential and enormous size, GST regime has a far reaching impact on it as GST affects every nook and corner of the business which is summarized as under –

Registration under GST

The requirement of registration in GST arises once the annual aggregate turnover of the business crosses the threshold limit as specified by the section 22(1) of the CGST Act, 2017 which is Rs 20 Lakhs in a financial year and that for special category state, the limit in Rs 10 Lakhs. The special category states are as under :

(1) Arunachal Pradesh

(2) Assam

(3) Jammu & Kashmir

(4) Manipur

(5) Meghalaya

(6) Mizoram

(7) Nagaland

(8) Sikkim

(9) Tripura

(10) Himachal Pradesh

(11) Uttarakhand

Restaurants availing Composition Scheme – 5%

Restaurants whose aggregate turnover is less than Rs 1 crore w.e.f. 13.10.2017 vide N.No. 46/2017-Central Tax dated 13.10.2017 (earlier threshold was Rs 75 Lakhs), can avail the benefits of “composition scheme” under section 10 of CGST Act, 2017. With this scheme, only 5% GST will be levied on the supply breaking-up into 2.5% CGST and 2.5% SGST.

This is the only service which has been brought under composition scheme. Otherwise composition scheme is available to traders and small manufacturers only.

This has to be paid out of the pocket by the restaurants as they are neither entitled to avail input tax credit of taxes paid on inputs such as raw materials or the service, nor they can recover the tax from their customers. Thus the restaurants opting for composition scheme cannot charge any tax in their bills. However, they have the option to pay full tax and avail credit open to them. Quarterly return [GSTR-4] to be filed by the hotels opting for composition scheme.

Effect on invoices due to GST

With the advancement of GST from 01.07.2017, the brunt of various indirect taxes viz. Service Tax, VAT, Entertainment or Luxury Tax etc. have been subsumed into a single levy.

GST is be levied into two parts i.e. CGST and SGST / UTGST, if supplied intrastate and IGST, if supplied interstate. Thus, the billers now have to charge GST on their bills which needs to designed using the clause 46 of the CGST Rules, 2017.

GST on comestibles served in Restaurants / food suppliers

Restaurants, with or without dining places with proper sitting, are required to charge GST at the rate as specified by the CBEC through Notification No. 11/2017 Central Tax (Rate) on the products supplied by them. Though the restaurants are entitled to full input tax credit on the inputs, input services, capital goods availed for providing the output service i.e. Restaurant service.

The GST rates such restaurants and food suppliers are tabulated below:

Description	GST rates applicable
Restaurants neither having the facility of AC or central heating at any time during the year nor having the license to serve liquor.	12%
Restaurants having the license to serve liquor.	18%
Restaurants having facility of full or part air-conditioning or central heating at any time during the year.	18%
Air-conditioned restaurants in 5-star or above rated Hotel.	18%
Outdoor catering	18%
Edibles in a premises (including hotels, convention centers, clubs, pandal, shamiana or any other place, specially arranged for organizing a function) together with renting of such premises	18%
All other services not specified elsewhere	18%

It is to be noted that though liquor license is a criterion for GST rate but alcohol is outside the preview of GST and State VAT is applicable on the same.

In all above cases, input tax credit would be admissible.

GST on Accommodations in Hotels

The GST rates applicable for accommodation in hotels, inns, guest houses, clubs, campsites or other commercial places meant for residential or lodging purposes depends upon the tariff per unit per day declared by them.

Addition-ally, they will be able to claim input tax credit in respect of the services rendered which reduces the overall impact of tax on the consumer.

The GST rates on such accommodations can be summarized as under –

Declared Tariff (per unit per day)	GST rates applicable
Less than Rs. 1000/-	Nil
Rs. 1000/- and above but less than Rs. 2500/-	12%
Rs. 2500/- and above but less than Rs. 7500/-	18%
More than Rs. 7500/-	28%

What is Declared Tariff?

• Declared Tariff as defined in clause 2(w) of N.No. 09/2017-Integrated Tax (Rate) includes 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.
• Such tariff can be declared anywhere, for example, on the websites through which customers can book the room or be printed on tariff card or displayed at the reception.
• In case different tariff is declared at different places, the highest of such declared tariffs shall be the declared tariff for the purpose of levy of GST.
• Further, if 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. But it can be noted that declared tariff at the time of supply would apply for the purpose of GST.
• In case an upgrade is provided to the customer for a lower rate, then the tariff declared for such upgrade shall be used for the purpose.

(Source: Tweet FAQ’s as clarified by GOI)

Effects on rate of GST in case of discounts on the declared tariff(s)

The GST rates applicable on all accommodation establishments (hotels, inns, guest houses, clubs, campsites or other commercial places meant for residential or lodging purposes) depends on the declared tariff per unit per day by the respective establishment.

If a discount is provided, then the slab of GST rate applicable (as per table above) will be as per declared tariff. However, the GST would be charged on the actual tariff charged @ applicable GST rate based on declared tariff.

Effects on rate of GST in case of increase in room rent beyond the declared tariff(s)

Sometimes customers demand for an additional bed in the room which results in increased room rent. In such case, GST rate would be determined according to declared tariff only for the room, and GST at the tariff so determined would be levied on the entire amount charged from the customer. For example, an extra bed in provided @ Rs. 2000 per day in a room with declared tariff of Rs. 6000 per day. In such case, GST @ 18% would be payable on Rs. 8000.

GST on Rent-a-cab services provided by hotels

Some hotels also provide cab services to its customers as an additional perk. The rate of GST and input credit available thereof can be summarized as under:

Description	GST rates applicable
Rent a cab (If fuel cost is borne by the service provider)	5% (With No ITC)
Rent a cab (If fuel cost is borne by the service receiver)	12% (With ITC available where cab is booked through other cab operator.)

GST on foreign currency exchange services

Due to large number of foreign customers, most of the major players in the hospitality industry also provide foreign currency exchange services to its customers. GST on such service is levied at the rate 18% and the value of supply may be determined as per the clause 32(b) of the CGST Rules, 2017 at the option of the hotel, but the option will not be withdrawn for the remaining part of the financial year. Such valuation is summarized as under :

Gross Amount Of Currency Exchanged (Rs.)	GST payable
0 to 1,00,000/-	1% or Rs. 250, whichever is higher.
1,00,001/- to 10,00,000/-	Rs. 1,000 + 0.5%
10,00,00/- and above	Rs. 5,500 +0.10% or Rs. 60,000, whichever is lower.

Other services provided by Hotels and Restaurants

Apart from aforementioned services, hotels provide a variety of other services to attract more and more customers, applicability of GST rate on which can be summarized as under:-

S. No.	Nature of Service	GST rate applicable
1.	Laundry services	18%
2.	Gymnasium services	18%
3.	Beauty parlor / saloon	18%
4.	Spa / pool services	18%
5.	Telecommunication services which includes telephone, WIFI etc	18%
6.	Business center	18%
7.	Sale of gifts / handicrafts	Rate as applicable to item

Input Tax Credit (ITC)

Section 16 of CGST Act, 2017 provides that every registered person shall be entitled to take credit of input tax charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business. This reduces the overall cost and thus reduces the burden of tax on the ultimate consumer.

Section 17(5) of CGST Act, 2017 inter alia, tells about the supplies credit on which is not available, which can, as relevant for hotels and restaurants, as follows:-

As per section 17(5), Notwithstanding anything contained in sub-section (1) of section 16 and sub-section (1) of section 18, input tax credit shall not be available in respect of –

(b)(i) food and beverages, outdoor catering, beauty treatment, health service, cosmetic and plastic surgery except where an inward supply of goods or service or both of a particular category is used by a regis-tered person for making an outward taxable supply of the same cate-gory of goods or services or both or as an element of taxable compo-site or mixed supply.

By virtue of section 17(5), no input tax credit shall be permissible on “food and beverages” and/or “outdoor catering” unless the same is used for making outward supply. Therefore, the input tax paid on “food and beverages and outdoor catering” shall be allowable only if the same are used for making taxable “outward supply”

Returns in GST

Hotels / restaurants, other than opting for composition scheme, are required to file GSTR-1, GSTR-2 and GSTR-3. Also, a monthly summary return called GSTR-3B is to be filed by the taxpayers till December, 2017.  These will be filed by 20^th of the following month.

These returns have to be furnished as per the timelines being notified.

Books of account / records required to be maintained under GST

Under GST, the activities of manufacture, provision of taxable service and sale of goods have a common law and hence, businesses can now maintain consolidated information which was maintained separately earlier. Under GST, every registered taxable person is required to maintain the following accounts:

a) Production or manufacture of goods;

b) Inward and outward supply of goods or services or both;

c) Stock of goods;

d) Input tax credit availed;

e) Output tax payable and paid; and

f) Such other particulars as may be prescribed

Every registered person is required to keep and maintain account for five years from the due date of filing annual returns for the year to which the account and rec-ords pertain.

In addition to maintaining the accounts specified above, a registered per-son, whose turnover during the financial year exceeds Rs. 2 crore, is required to get the accounts audited by a chartered accountant or cost accountant and submit a copy of the audited annual accounts and a reconciliation statement in form GSTR-9B.

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