Indian tourism industry is a major contributor to the Indian Economy, and it is expected that it will grow at a higher pace in times to come and become a major revenue earning industry for the Government. Hotels and restaurants are a major component of the tourism industry and can be termed as the backbone of the industry without which the industry cannot survive. Further, it provides employment opportunities to a large population of the country and a large number of micro, small and medium entrepreneurs are dependent on this sector as a source of their livelihood.Thus, it becomes very important for the Government to address issues faced by the industry and ensure its smooth progression.

In the erstwhile regime, hotel & restaurant industry was faced with the problem of compliance with multiplicity of taxes viz. VAT, Service Tax, Luxury Tax and even excise duties on manufacture of pastries etc. However, with the advent of the GST Law, all these taxes have been subsumed under one single tax.However, with the new law has come a variety of new problems and issues which are facing the industry.

GST Implications on Hotels & Restaurant Industry

Hotels may to be understood to be one providing facility of lodging or accommodation and may or may not include fooding or other facilities. However, a restaurant may be meant to be a common place where people enjoy cooked food and other facilities as per their preferences. A restaurant does not provide any lodging facilities, but a hotel may also provide restaurant services in addition to lodging.The rate structure under the hotel and restaurant industry has undergone drastic changes within these initial years of the introduction of the GST Law.

In the following tables, a detailed account of the changes in GST Rates over the period of time has been given:

Hotel Room Rent

Changes proposed in 14th GST Council Meeting dated 18th& 19th May, 2017 effective 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

Changes proposed in 37th GST Council Meeting dated 20-09-2019 effective 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

Thus, the final rate structure for hotels applicable as on date may be summed up as follows:

Sl. No. Room Rent GST Rate Chapter/ Section/ Heading
1 Rs. 0/- to Rs. 1,000/- per day Exempt  

Heading 9963

(Accommodation, food and beverage services)

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

Restaurant Industry

Changes proposed in 14th GST Council Meeting dated 18th& 19th May, 2017 effective 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 and not having licence to serve liquor 12%
2 Restaurants having facility of air-conditioning or central heating at any time during the year (whether serving liquor or not) 18%
3 Restaurants serving liquor 18%
4 Other than above 18%

Changes proposed in 23rd GST Council Meetings dated 10-11-2017 effective 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

Changes proposed in 37th GST Council Meeting dated 20-09-2019 Effective 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

Thus, the final rate structure for restaurants applicable as on date may be summed up as follows:

Sl. No. Room Rent GST Rate Chapter/ Section/ Heading
1 All stand-alone restaurants irrespective of air conditioned or 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

Whether Declared Tariff Relevant in determining GST Rate?

Notification No. 13/2018-Central Tax (Rate) dated 26-07-2018 (Effective from 27-07-2018) read as under:

“(b) in items (ii), (vi) and (viii),-

(A) for the words “declared tariff” wherever they occur, the words “value of supply” shall be substituted;”

Thus, w.e.f. 27-07-2018 GST Rate on hotel room tariff shall be determined on the basis of value of supply i.e. value actually charged in the invoice instead of declared value.

E-Commerce Operators

E-Commerce Operators like Oyo Rooms, Swiggy, Zomato etc. have become an indispensable part of the hotel and restaurant industry. A major portion of the revenues of the industry is routed through these online platforms. These operators route orders to hotels and restaurants and in return they charge commission from them at agreed rates. The impact of such transactions may be understood as under:

1. GST on hotel tariff or restaurant bills shall be charged as usual according to the prescribed rates which has been discussed above.

2. GST on commission paid to E-Commerce Operators shall be 18%.

Let us understand the billing procedure followed by them:

Hotel Industry

Sl. No. Particulars Amount (Rs.)
1 Room Tariff Charges 10,000.00
2 Discount 30% of 1 3,000.00
3 Net Bill Value (1-2) 7,000.00
4 GST @ 12% on room tariff (5% of 3) 840.00
5 Total Payable by Customer (3+4) 7,840.00
6 Service Fee of E-Commerce Operator (40% of 3) 2,800.00
7 GST @ 18% on Service Fee (SAC 996813) [18% of 6] 504.00
8 Total Bill of E-Commerce Operator (6+7) 3,304.00
9 Net Payable to Hotel by E-Commerce Operator (5-8) 4,536.00

Note:

  • GST rate on hotel accommodation services is assumed to be 18% in above example, however it can also be 12% depending upon the room tariff in hotel.
  • TCS Provisions on E-Commerce Operators have been ignored in above table.
  • In the above, example the transaction value was less than Rs. 7,500/- and so 12% rate was charged and not 18%.

Restaurant Industry:

Sl. No. Particulars Amount (Rs.)
1 Restaurant bill value 100.00
2 Restaurant Discount 10% 10.00
3 Net Bill Value (1-2) 90.00
4 GST @ 5% on food bill (3*5%) 4.50
5 Total Payable by Customer (3+4) 94.50
6 Service Fee of E-Commerce Operator 10.00
7 GST @ 18% on Service Fee (SAC 996813) [6*18%] 1.80
8 Total Bill of E-Commerce Operator (6+7) 11.80
9 Net Payable to Restaurant by E-Commerce Operator (5-8) 82.70

Note:

  • GST rate on restaurant services is assumed to be 5% in above example, however it can also be 18% depending upon the room tariff in hotel.
  • TCS Provisions on E-Commerce Operators have been ignored in above table.

Renting of Banquet Hall and Catering Services

Banquet hall services are different from restaurant or hotel services. Under banquet hall services, the primary service provided is renting of a premises for conducting an event. It may be with or without accommodation/ fooding facilities. However, under restaurant and hotel services the basic service provided is food and accommodation respectively. In case, banquet hall services are provided along with fooding and accommodation services, the same shall be considered as composite supply of services and 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)

(iv) Supply of “outdoor catering”, at premises other than “specified premises” provided by any person other than- (a) suppliers providing “hotel accommodation” at “specified premises”, or (b) suppliers located in “specified premises‟ 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 for organising a function) at premises other than “specified premises” provided by any person other than- (a) suppliers providing “hotel accommodation” at “specified premises”, or (b) suppliers located in “specified premises” 2.50 2.50 5.00 Not Available

Applicability of Reverse Charge Mechanism

Reverse Charge Mechanism u/s 9(4) of the CGST Act, 2017 is not applicable to hotel and restaurant industry and thus no tax under the mechanism is to be paid.

Time of Supply

As per Section 13 of the CGST Act, 2017, time of supply in case of services shall be the earliest of the following:

  1. the date of issue of invoice by the supplier, if the invoice is issued within the period prescribed under sub-section (2) of section 31 or the date of receipt of payment, whichever is earlier; or
  2. the date of provision of service, if the invoice is not issued within the period prescribed under sub-section (2) of section 31 or the date of receipt of payment, whichever is earlier; or
  3. the date on which the recipient shows the receipt of services in his books of account, in a case where the provisions of clause (a) or clause (b) do not apply:

Thus, time of supply in case of hotel and restaurant services shall be:

If invoice generated,

  • Time of issuance of invoice, or
  • Time of provision of service Earlier
  • Time of recording in books of accounts

If invoice not generated,

  • Time of receipt of payment, or
  • Time of provision of service Earlier
  • Time of recording in books of accounts

Place of Supply

Section 10(3) of the IGST Act, 2017 states as follows:

“(3) The place of supply of services,

by way of lodging accommodation by a hotel, inn, guest house, home stay, club or campsite, by whatever name called, and including a house boat or any other vessel; or

(4) The place of supply of restaurant and catering services, personal grooming, fitness, beauty treatment, health service including cosmetic and plastic surgery shall be the location where the services are actually performed.”

From, the above, it is clear that place of supply in case of hotel industry shall be the place of location of immovable property and in case of restaurant services shall be the location where the services are actually performed.The above provision gives rise to certain issues which has been discussed below:

Supplier and Recipient in separate states

If the hotel is located in Guwahati and the recipient of service is located in Delhi. In this case, the place of supply of service shall be Guwahati and CGST and Assam GST (AGST) will be charged and not IGST. Further, the recipient of service will not be able to avail ITC of the tax paid on such transaction as GST paid in Assam is not eligible in Delhi GST.

Place of supply SEZ Units

Section 7(5) of the IGST Act, 2017 reads as under:

“(5) Supply of goods or services or both,-

(a)…….

(b) to or by a Special Economic Zone developer or a Special Economic Zone unit; or

(c)……

shall be treated to be a supply of goods or services or both in the course of inter-State trade or commerce.”

Further, Circular No. 48/22/2018-GST, dated 14.06.2018, clarified that services of short term accommodation, conferencing, banqueting etc., provided to a SEZ developer or a SEZ unit shall be treated as an inter-State supply.

Thus, as evident from the above provisions, in case of supply of hotel or restaurant services to a SEZ unit shall be charged with IGST and not CGST and SGST.

Conclusion

The industry after much uncertainty has finally reached a stage where we can say that the stabilisation of rates has come. However, the Corona Pandemic has created havoc in the industry and if proper incentives are not accorded to the sector, it might witness a collapse and that will lead to a huge loss to the overall economy.

Disclaimer: The above expressed views are purely the personal views of the authors. The possibility of other views on the subject matter cannot be ruled out. So the readers are requested to check and refer relevant provisions of statute, latest judicial pronouncements, circulars, clarifications etc before acting on the basis of the above write up. The authors are not responsible in anyway.

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4 Comments

  1. IMRAN ALI says:

    Thanks for the explanation, very well written. I have a question about the property with Hotel (less than 7500 tariff) and Restaurant in same premises. Hotel room rates are charges at 18% and food is charged at 5% however with out ITC. So, how about the common expenses like rent, marketing, sales, purchases etc.. Do I have to create a new company for restaurant and register as composition scheme and divide all expenses between 2 entities ?

  2. MANPREET CHAHAL says:

    RESTAURENT PAYING COMMISSION TO ZOMATO, SWIGGY ETC. AND THEY CHARGE GST ON THE COMMISSION. NOW MY QUESTION IS WHETHER WE CLAIM ITC ON GST PAID ON COMMISSION ??

  3. Rakshit Verma says:

    Sir firstly I would like to congratulate you for drafting such nice article. However, with respect to the view of ‘Declared Tariff’ not relevant to determine GST Rate, I agree that in case of Room Accommodation Service, it is not relevant but for the purpose of determine GST rate applicable to Restaurants and Banquets situated in Hotel, it still holds relevance to decide the category of ‘specified premises’

    1. Prem says:

      Thanks for the explanation, very well written. I have a question about the property with Hotel (less than 7500 tariff) and Restaurant in same premises. Hotel room rates are charges at 18% and food is charged at 5% however with out ITC. So, how about the common expenses like rent, marketing, sales, purchases etc.. Do I have to create a new company for restaurant and register as composition scheme and divide all expenses between 2 entities ?

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