Proposed changes in Hospitality Sector with respect to GST as discussed in the 37th meeting of the GST Council

With the Puja and Winter vacations approaching, expeditions and trips are inevitable!

The 37th Meeting of the Goods and Services Tax Council, held in Goa on 20th September, 2019 had proposed to lower the GST rates on the hospitality sector in order to boost the economy and promote the tourism industry for larger contributions to the GDP.

The bookings in hotels are often made on advance basis to avoid the availability constraints during peak seasons. The amount paid in advance for booking hotels would have been taxed at the rates prevalent prior to the 37th meeting of the GST Council and there is a possibility that the amount of tax liable to be charged be different than it is actually charged. Consequently, we should relate the amount paid for the bookings with the Government’s decision to lower the tax rates on hotels as this would lead to savings on part of the tourists. The decisions taken in the Council meeting would be applicable from 01/10/2019 as per the Press Release by the PIB.

Tariff Old Rates New rates
0-1000 Exempt Exempt
1001-2500 12% 12%
2501-7500 18% 12%
7501 and above 28% 18%

In pursuance of Section 14 of the Central Goods and Services Act, 2017, the changes in the tax rate would have the following effects on your hotel tariffs:

Case 1: Where the services of the Hotel have been received before the change in rate of tax (say 01/10/2019)

  • If the invoice and payment dates are after the rate change, the new tax rate shall be applicable
  • If the invoice has been issued before change of rate and the payment is made after the change in rate of tax, the old rate shall be applicable.
  • If the payment has been received before change in rate of tax and the invoice has been issued after the change of rate, the old rate shall be applicable.

To conclude in simple terms, where the services of the hotel have been received before the change in rate of tax and either date of invoice or payment in before the date of change in tax, the old rate shall be applicable, otherwise the new rate is to be charged.

Let us take a numerical example, where the old rate of tax is 28% and the new rate is 18% for further clarity.

Date of Service Date of Invoice Date of Payment Applicable Rate
15/09/2019 02/10/2019 02/10/2019 18%
15/09/2019 19/09/2019 02/10/2019 28%
15/09/2019 02/10/2019 18/09/2019 28%

It is worth noting that any case relating to refund of excess taxes paid would not arise where the services have been received before change in tax rate.

Case 2: Where the services of the Hotel have been received after the change in rate of tax (say 01/10/2019):

  • If the invoice and payment dates are before the rate change, the old tax rate shall be applicable
  • If the invoice has been issued after change of rate and the payment is made before the change in rate of tax, the new rate shall be applicable.
  • If the payment has been received after change in rate of tax and the invoice has been issued before the change of rate, the new rate shall be applicable.

In a nutshell, where the services of the hotel have been received after the change in rate of tax and either date of invoice or payment in after the date of change in tax, the new rate shall be applicable, otherwise the old rate is to be charged.

Normally the date of receipt of payment is the date of credit in the bank account of the recipient of payment or the date on which the payment is entered into his books of account, whichever is earlier. Further, the date of credit in the bank account is relevant if such credit is after four working days from the date of change in rate of tax.

Date of Service Date of Invoice Date of Payment Applicable Rate
05/10/2019 25/09/2019 25/09/2019 28%
05/10/2019 19/09/2019 02/10/2019 18%
05/10/2019 02/10/2019 18/09/2019 18%
05/10/2019 19/09/2019 28/09/2019 (Deemed to be 02/10/2019) 18%

Where the payment has been made before rate of tax in tax and the invoice is issued subsequently, i.e. after that change of rate of tax, the tourist shall be eligible to claim the excess GST paid to the Hotel.

In other words, where the rate at which tax is paid is more than the applicable rates as mentioned in the cases above, the tourists may ask the Hotel to refund the excess GST paid.

Catering Services in Hotels

Where the room rent is upto than Rs 7500 per night, the outdoor catering services provided in that hotel would be 5% without ITC against 18% with ITC which was prevalent before 1st Oct, 2019.

Where the room rent is greater than Rs 7500 per night, the outdoor catering services would be taxed at 18%. There has been no change in this provision.

The time of supply provisions would be determined as per Section 14 of Central Goods and Services Tax Act, 2017, same as mentioned above.

Author Bio

Qualification: Student - CA/CS/CMA
Company: Kedia Dhandharia & Co.
Location: Kolkata, West Bengal, IN
Member Since: 25 Sep 2019 | Total Posts: 1

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2 Comments

  1. Dr Munish Duggal says:

    I had booked catering for 150 persons in Ambassador hotel Delhi before the announcement. Advance payment of 10% is already made. The function is after october 15, 2019. Should I seek refund on per plate cost of Ambassador hotel?

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