GST Impact on Hotels & Restaurant Etc.

Rate under Current Taxes And GST
S No Particulars GST Rate Service Tax Rate Vat Rate
1 Supply of Food/drinks in restaurant not having facility of air-conditioning or central heating at any time during the year and not having licence to serve liquor 12% With Full ITC Exempted
  • 5.5% on pizza, burgers, sandwich, hotdogs, on cooked food except in restaurants and hotel categorized as 3star and above and heritage hotels as “grand /classic”, food Served on Rest.
  • 14.5% on beverages, 3 stars and above, under the brand name by branded chain of cooked food.
2. Renting of hotels, inns, guest houses, clubs, campsites or other commercial places meant for residential or lodging purposes having room tariff Rs.1000 and above but less than Rs.2500 per room per day

 

12%  With Full ITC
  • Abatement 40%,
  • CC allowed on input services only,
  • exemption Below Rs 1000 & Equivalent
3 Supply of Food/drinks in restaurant having licence to serve liquor

 

18% With Full ITC
  • If AC & CAHC: 40 % Of value & Otherwise  exempted
4. Supply of Food/drinks in restaurant having facility of air-conditioning or central heating at any time during the year 18% With Full ITC
  • 40% of value Taxable
5. Supply of Food/drinks in outdoor catering

 

18% With Full ITC
  • 60% of Value taxable
6. Renting of hotels, inns, guest houses, clubs, campsites or other commercial places meant for residential or lodging purposes where room tariff of Rs 2500/ and above but less than Rs 5000/- per room per day 18%

With Full ITC

  • 60% of Value Taxable
  • CC Allowed on input Services only
7. Bundled service by way of supply of food or any other article of human consumption or any drink, in a premises (including hotel, convention center, club, pandal, shamiana or any other place, specially arranged for organizing a function) together with renting of such premises 18% With Full ITC
  • Abatement 30%
  • CC Allowed On Input Services only
8 Supply of Food/drinks in air-conditioned restaurant in 5-star or above rated Hotel

 

28% With Full ITC
  • 60% of value
  • CC Allowed in Input Services only
9. Accommodation in hotels including 5 star and above rated hotels, inns, guest houses, clubs, campsites or other commercial places meant for residential or lodging purposes, where room rent is Rs 5000/- and above per night per room 28% With Full ITC
  • 60% of value
  • CC Allowed in Input Services only

1. Current situation

The hospitality industry, like every other sector in the Indian economy, pays multiple taxes (VAT, luxury tax, and service tax) in the existing indirect tax regime.

  • A hotel where the room tariff exceeds Rs 1,000 is liable for service tax at 15 percent. An abatement of 40% is allowed on the tariff value bringing the effective rate of service tax down to 9%. The Value Added Tax 5.5% to 14.5% and luxury tax will still apply.
  • for restaurants there is 60% abatement which means that the service tax is charged at an effective rate of 6% on the F&B bills, apart from VAT (5.5 percent to 14.5%).
  • Bills for bundled services like social functions (seminars, marriage etc.), are taxed with an abatement of 30%. The cascading effect of the existing indirect tax regime where the end consumer pays a tax on tax increases the end cost.
  • Hoteliers and hospitality businesses do not get any input tax credit on the taxes they pay currently, as central taxes cannot be set off against state taxes (VAT) and vice-versa and also due to availability of abatement no input credit is available.

2. GST Scenario

General provisions

1. The threshold limit of aggregate annual turnover of Rs.20 lakhs for registration purpose is applicable for hospitality Industry as well.

2. Composition levy: section 10 of the CGST Act provides for compounded levy of tax at the rate of 2.5% for service providers, if the gross annual turnover of the taxable person does not exceed Rs 75 lakhs.   This provision is also applicable to the hotels and restaurants. However on availing this benefit, the owners of the restaurants would not be able to collect the tax from their customers and also they are not eligible for availing input tax credit on the goods and services used in providing the service.

Regular rates:

The levy of GST on hotels and restraints is discussed in the following section of this article with examples for the better understanding of the readers

Type I hotels and restaurants

A non A/C Restaurant famous for evening snacks, sweets and Tiffen items. They do have a small eat out place under fan but do not have permit for serving liquors.

Currently these categories of restaurants which do not have AC in their hotels are exempted from Service tax. Only VAT is applicable as per the state provisions of VAT.

GST Scenario

Option 1 Regular scheme

Tax rate applicable under GST: 12 % (6% SGST + 6% CGST) to be charged additionally in the bill. Suppose bill value is Rs 300 GST to be charged is Rs.36 total bill value will be Rs336. Full Input tax Credit is available in respect of goods and services used for providing output service.

Option 2 – Composition Scheme

Rate of tax applicable: 5% (2.5 % CGST + 2.5% SGST) no tax to be charged in bill to the customer. Tax to be borne by the owner.

For the same example as above tax to be paid by the owner of the restaurant is 5% of the bill value i.e. Rs.15. total value of the bill to the customer is only RS.300 as the owner cannot pass on the tax to the customer. No input tax credit is available on the inputs and services used in providing output service.

Type II Hotels

ABC is known for its mouthwatering dishes and thali items. The ground floor portion of the restaurant  is non a/c while in the top floor one can enjoy the tasteful dishes in a cool A/C environment with dim lights and channel music. The aggregate turnover of the hotel is around 1 crore during the last year. Shri X spends one evening with family in the first floor of the hotel and got a bill of Rs 1000 exclusive of taxes.

Current scenario

Currently such types of restaurants are required to pay service tax @6% after the abatement of 60% and No Input Tax Credit is available there on. VAT is applicable as per the state provisions of VAT.

GST Scenario

As per the decision of the GST council, Air-conditioned Restaurants and Restaurants with licence to serve liquor come under GST rate of 18%. A plain reading of this gives rise to two types of interpretation as follows:

  1. Since there are two distinct portions one with A/C and other without A/c, it is logical that the customers who take services in the non A/c conditioned portion should not be charged with the higher burden of tax and should be charged the same rate of tax as is applicable to other non a/c restaurants . Thus those customers taking services at the non a/c portion would be charged with tax rate of 12% while the take services at the top floor with a/c facilities should be charged with the higher rate of tax of 18%
  2. In contrast to the above presumption, earlier in the Service Tax regime, while non a/c restaurants were exempted from payment of service tax, even if in any part of the restaurant if centralized air conditioning or air heating facilities are present the restaurant comes under the purview of service tax. On a similar footing even if air conditioning facilities are available in one portion of the restaurant if the whole restaurant comes under the higher rate of taxation of 18% , then even those who take food in the non a/c environment have to shed tax at 18%. This being the case in respect of majority of restaurants

This presumption is further supported by the fact that as per the GST council decision, air-conditioned restaurants and restaurants with licence to serve liquor come under GST rate of 18%.  So even if it is a non a/c restaurant if they possess licence to serve liquor, whether they serve liquor or not the hotel comes under 18% tax rate. Thus even those persons who does not take liquor and take only food has to pay tax at 18% just because the hotel is in possession of licence to serve liquor.

Taking this analogy, even if the ground floor is non a/c, since the first floor is air-conditioned wherever one takes the services the tax rate to be charged would be 18%.

While the consumers have to shed 18% tax, the owner of the restaurant will be getting the relief of the input tax credit on the inputs and services.

But if this presumption is correct most of the customers of even ordinary restaurants would be severely affected.

Type III Out door catering services

A & Co. catering services provides out door catering services in Jaipur. Apart from providing catering services for functions like marriages and other religious evens, they also provide catering services to the employees of corporates in their offices and factories.

Current scenario

Currently Outdoor catering is taxed at 9% of Service tax (abated rate) and VAT as per provisions of respective state VAT Act.

Scenario under GST

GST at the rate of 18% of the value of services provided with full input tax credit.  However since the inputs are mostly rice, grains etc which are zero rated, the availability of ITC does not substantially help the outdoor catering service provider. Thus the outdoor catering provider has to pay a GST of 18% (9% CGST +9%SGST) if it is intra state supply and 18% IGST if it is inter-state supply.

Type IV Hotels

Restaurants in 5 stars and above rated hotels

XYZ with 5 Star rating they also have their restaurant in the premises of the hotel.

Current scenario

Currently these types of restaurants are required to pay service tax @6% and No ITC is available there on because of the availability of abated rate. VAT is applicable as per the state provisions of VAT.

GST Scenario

There is no possibility to think that, these restaurants would ever fall in the category of below Rs 20 lakhs aggregate turn over in a financial year. Thus though the threshold limit is available to these type of hotels as any other case, it is not operative in such cases. Similar is the case with the composition scheme.

Thus these restaurants have to pay 28% GST (14% CGST and 14% SGST) on their intra state supply of services and 28% IGST on their interstate supply of services.

Full Input tax Credit is available in respect of goods and services used for providing output service.

Hotels providing short term accommodation services along with supply of food

Type I lodging houses

Budget hotels with room tariff of less than Rs 1000

These category of hotels are exempted from the payment of GST.

Type II hotels with room tarrif ranging between Rs 1000 and above but less than Rs 2500

Current scenario

A hotel where the room tariff exceeds Rs 1,000 is liable for service tax at 15 percent. An abatement of 40% is allowed on the tariff value bringing the effective rate of service tax down to 9%. The Value Added Tax 12 % to 14.5 % and luxury tax will still apply. Not input service credit was allowed due to adoption of abated rates.

 Scenario under GST

Such type of hotels attracts a GST of 12% (6% CGST +6%SGST) with full input service credit. Thus even if we assume 12% VAT, then as against 21% tax paid earlier under the GST regime these types of hotels end up in paying only 12 % GST with the benefit of input tax credit also. This appears to be a cheerful situation for the owners of such hotels.

Type III Hotels

Hotels with room tariff more than Rs 2500 but less than Rs. 5000

Current scenario

Such hotels are liable for service tax at 15 percent. An abatement of 40% is allowed on the tariff value bringing the effective rate of service tax down to 9%. The Value Added Tax 5% to 14.5% and luxury tax will still apply. No input service credit was allowed due to adoption of abated rates.

Scenario under GST

 Such hotels are liable for GST of 18% (9% CGST +9%SGST) as against the effective tax of 21% under the present indirect tax regime. Further the effective tax rate would further reduce due to availability of input credit for the payment of tax. Thus GST is beneficial to owners of such hotels as it reduces the overall tax burden and makes their services more competitive to their next higher level service provider via five star hotels.

Type IV Hotels 

Hotels with room tariff exceeding Rs 5000 per night per room

Current scenario

Such hotels are liable for service tax at 15 percent. An abatement of 40% is allowed on the tariff value bringing the effective rate of service tax down to 9%. The Value Added Tax 5.5 %to 14.5 % and luxury tax will still apply. No input service credit was allowed due to adoption of abated rates. Thus the effective rate of tax paid works out to 21% with the minimum VAT of 12%. Adding luxury tax it would further go up.

Scenario under GST

Such hotels are liable for GST of 28% (14% CGST +14%SGST) as against the effective tax of 21% under the present indirect tax regime. Adding the luxury tax component, the tax rates before and after GST appears to be in the same range. Thus the owners of such hotels and their customers have no impact on account of introduction of GST.

Author Bio

Qualification: CA in Practice
Company: Dinesh Sudarshan Jain & Co
Location: Jaipur, Rajasthan, IN
Member Since: 24 Jun 2017 | Total Posts: 1

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Tags : goods and services tax (3151) GST (2738)

20 responses to “GST Impact on Hotels & Restaurant Etc.”

  1. Ashok Kumar Naik says:

    my a.c Restaurant turnover is 30-40 lacks. Then what will be the GST rate.

  2. Dipika Bhatt says:

    Can a Owner of Business get GST Input credit on restaurant Bill? How ?

  3. Harshit Panjwani says:

    in case of bundled service i.e. booking of a hall for business meeting with food services, can the receiver of the services get the input tax credit of the same as it is for the purpose of business?

  4. Jagadeesh says:

    Sir , If declared tariff is 3500 but hotel cherged 2400 from customer. Then what is GST rate and On what amount GST rate will apply??….please reply me urgent.

  5. Pradip maitra says:

    my business food cum lodge business my restaurant yearly turnover below 20 lakh and lodge yearly turnover 18 lakhs my all room below 1000 . . this is a propritor firm in one lisence .i allready gst registration and apply for composit scheme of my restaurant.i can operate my busininess in one lisence by propritorship. now i am helpless please inform to me .

  6. V kumar says:

    I am a travel agent. I do hotel booking for my customer. Suppose hotel gv me the room at 10000+ gst @28%. Total 12800. Now i sell this room to my customer at 15000. Now i want to know that at what amount i have to charge gst and at what rate? Also pls clarify me can i take ITC?

  7. A.R.BHAT says:

    can a dealer resturant service having A/C go for composition (No Liquor sale) up to 75 lakhs,
    Please clarify sir,

  8. A.R.BHAT says:

    Please clarify,
    A/c Resturant ( no liquor) newly started during GST regime, can I go for composition and pay tax at 5% as a resturant service dealer upto 75 lakhs?

  9. Anuja Bhandari says:

    What will be the treatment for resorts who provide a package of room+food+recreational activity? Can this be treated as bundled service?

  10. Basant says:

    I run hotel which has annual turnover Rs.40 lakh. We have rooms ranging from Rs.700 to 1800. I want to know if i opt for composite scheme will i get the exemption on tax for room rent below Rs.1000/- or on whole reciept i have to pay GST @ 5%.

  11. Basant says:

    I run hotel which has annual turnover Rs.40 lakh. We have rooms ranging from Rs.700 to 1800. I want to know if i opt for composite scheme will i get the exemption on tax for room rent below Rs.1000/- or on whole reciept i have to pay GST.

  12. Chandra Mohan Singh Bisht says:

    I run a seasonal rest house (which runs for almost 4 to 5 months ) Room Tariff are 3500 / room (AC) and provide Thali system to guest , 150 / Thali to their rooms , and my annual turnover is less than 20 L , what will be the GST scenario in this case , any help would be highly appreciable

  13. CHITHRAN says:

    GST RATE ON HALL RENT (MANDAP KEEPER)

  14. sandeep says:

    I run an a/c restaurant, GST in 18%.
    Lassi is exempted in GST,
    Please clarify what I should charge ?

  15. Rajiv says:

    You have no licence for a Hotel or guest houses.
    U r not applicable under GST.

  16. CA Ankit Khandelwal says:

    GST Liability Exempted In Following to Condition Only…
    1.Services by a hotel, inn, guest house, club or campsite, by whatever name called, for residential or lodging
    purposes, having declared tariff of a unit of accommodation less than one thousand rupees per day or
    equivalent
    2.Services by way of renting of residential dwelling for use as residence

    You are providing bundle Services (Accommodation + Food) to your guests so you liable to pay GST @ 18 % With Full ITC if your Cross Threshold limit (i.e. 20 Lac).if You Opt Composition Scheme the you Will Liable to Pay 5%.

    • DHARMESH says:

      PLEASE GUIDE ME IF MY HOTEL ROOMS TARIFF 900 AND 1300 AND 1800 AND I ALSO PROVIDE FOOD,LAUNDRY WHICH IS CHARGEABLE. NOW HOW I CHARGE GST ?
      CAN I GO FOR COMPOSITE SCHEME ?

  17. Sylvia Francis says:

    I have the same question as Mr. Muralidharan above. I also run a small home stay and the annual turnover has never been more than 13 lakhs. At present ST chargeable is @ 9% and LT @ 0.5%. What will the rate of GST be in our case?

  18. Muralidharan says:

    Would GST be applicable to homestays?Since homestay is that where guests are kept in the home of the owner and he looks after them personally like family. The food had by the homestay owner’s family is shared with the guests. So what rate of GST can be charged, if any?

    • Anantha KUmar N says:

      Even home stays are included in Hotels. It reads as ” Renting of hotels, inns, guest houses, clubs, campsites or other commercial places
      meant for residential or lodging purpose”

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