CA Srikant Agarwal

CA Srikant AgarwalAll of us use the services of Hotels and restaurant for stay, meetings, party, get together etc. It is generally been observed that the ultimate payment made by us is much higher than the prices mentioned on the menu list or tariff charts. The difference arises because of 4 major heads:

1) Service Charges

2) Luxury tax

3) VAT (Value added Tax) and

4) Service tax

In this article we will discuss in detail about each head separately.

1) Service Charges

Generally service charges are applied in case of restaurant or hotel food bill (and not on stay charges i.e room rent). It is a non-statutory charge. Many a time this service charges is assumed to be as part of service tax which is not so. Service charges is a kind of tip which is charged by the restaurant or hotel and it normally ranges from 0% to 10% (In some cases it may be even higher and is purely discretionary on the part of service provider).

The service tax and VAT is applicable on service charges as well.

2) Luxury tax

It is applicable on stay charges (i.e Room Rent) and is not applicable on food charges.

Luxury tax is statutory in nature and is applied by the different states on the stay charges (i.e Room Rent). It varies from state to state. The Luxury tax rate for some of the states are as below:

Per Day room Rent Maharashtra Per Day room Rent Delhi
< = Rs 1000 Nil < Rs 750 Nil
> Rs 1000 but < = Rs 1500 4% > = Rs 750 but < Rs 1000 3%
> Rs 1500 10% > = Rs 1000 10%
Per Day room Rent Assam Per Day room Rent GOA
< Rs 1000 Nil < = Rs 500 Nil
> = Rs 1000 but < Rs 1999 5% > Rs 500 but < = Rs 2000 5%
> = Rs 1999 but < Rs 2999 8% > Rs 2000 but < = Rs 5000 8%
> = Rs 2999 12% > Rs 5000 12%

It may be notes that no service tax is levied on Luxury tax.

3) VAT (Value Added Tax)

VAT is generally applicable on restaurant or food bills. However sometime it is also applied on room rent by showing the food portion separately.

The rate of VAT again varies from state to state and is applicable on the whole value of the food bill (including service charges if any).

VAT on Hotel Room Rent

Many a time hotels use to provide complimentary breakfast or meal and do not charge for it separately and it forms part of room tariff. In such a case some of the hotels at the time of billing to customer use to show the charges towards the complimentary food and charge VAT on that food portion of the bill separately. It has the impact of reducing the charges towards stay charges and accordingly luxury tax get reduced.

This can be shown with an example:

Say the tariff charge in a Hotel is Rs 6000 (with complimentary breakfast). In such a situation the billing may be made in two ways:

Particulars Case 1 Case 2
Stay Charges            6,000          5,200
Meal Charges                  –              800
Add: VAT say @ 14.50% on meal charges                  –              116
Add: Luxury tax say @ 10% on stay charges              600              520
Add: Service Tax @ 8.40% (i.e 60% of 14%) **              504              504
Total            7,104          7,140

** Service Tax part discussed in detail in the next section in detail.

VAT on Food Bill

VAT is applicable on the food bill of the restaurant or hotel as per the rate prescribed by the respective state. Here the VAT applies on the full value of food charges including the service charges (if any).

4) Service Tax

Prior to applicability of negative list of services w.e.f 01.07.2012 (i.e all the services are taxable except those mentioned in the negative list) the taxability of Hotel, food and drinks charges was covered by 3 specified services

1) Outdoor catering (Sec 65(105)(zzt) (w.e.f 10.09.2004 and effective upto 30.06.2012)

2) Restaurant services (Sec 65(105)(zzzzv) (w.e.f 01.05.2011 and effective upto 30.06.2012)

3) Hotel accommodation under (Sec 65(105) (zzzzw) (w.e.f 01.05.2011 and effective upto 30.06.2012)

The service tax applicability and the valuation of service can be illustrated with the help of below table:

Service Tax Applicability:

Particulars Prior to 01.07.2012 Post 01.07.2012 to 31.03.2013 Post 01.04.2013
Taxability of Food supplied in Restaurants serving liquor and being Air conditioned Taxable
Taxability of Food supplied in Restaurants being Air conditioned only Not Taxable Taxable
Accommodation in a Hotel for declared tariff of more than Rs 1,000/- per day Taxable for period for less than continuous three months Taxable without any exclusion of period
Mandap Keepers’ Service, Outdoor catering Service Taxable
Laundry Services (i.e. ‘Dry cleaning’ as well as ‘wet cleaning’) , Telephone services, No Show charges, cancellation charges, etc. Not taxable unless specifically defined Taxable in view of the expanded definition of services and applicability of negative list

Taxable portion of Value of service

Particulars Prior to 01.07.2012 Post 01.07.2012 to 31.03.2013 Post 01.04.2013
Accommodation in a Hotel for declared tariff of more than Rs 1,000/- per day Taxable Value : 50% Taxable Value : 60% Taxable Value : 60%
Food and drink supplied in Restaurants serving liquor and being Air conditioned Taxable Value : 30% Taxable Value : 40% Taxable Value : 40%
Food and drink supplied in Restaurants being Air conditioned only Not taxable Not taxable Taxable Value : 40%
Food and drink supplied in outdoor catering Taxable Value : 50% Taxable Value : 60% Taxable Value : 60%
Food and drink supplied in Other services like convention, pandal, shamiana etc Taxable Value : 60% Taxable Value : 70% Taxable Value : 70%

The applicability of all the above 4 components can be shown with below example:

Eg 1 ) X Ltd organizes a dealer meeting at Taj Hotel which includes stay for night as well.

The Hotel offered below rates:

S.N Particulars Am Rs
1 Room Rent for 20 participant with complimentary breakfast            120,000
2 Conference room Charges            100,000
3 Lunch food charges              80,000
4 Audio visual arrangement               20,000
5 Evening function (Food and Drinks) (Shamiana) charges            150,000
6 Service Charges @ 8% on Lunch and evening function
7 Taxes Extra  As Applicable

Say rate of Luxury Tax is 10%, VAT is 14.50% and service tax rate is 14%.

Then the total billing will be as below:

For Room rent the billing can be done in following 2 ways:

Without considering the value for complimentary breakfast
S.N Particulars Am Rs
1 Room Rent for 20 participant with complimentary breakfast 120,000
Add: Luxury Tax @ 10% 12,000
Add: Service Tax @ 8.40% (i.e 60% of 14%) 10,080
Total 142,080

After considering the value for complimentary breakfast
S.N Particulars Am Rs
1 Room Rent for 20 participant with complimentary breakfast 108,000
Complimentary Breakfast @ 600 per head 12,000
Add: VAT @ 14.5% 1,740
Add: Luxury Tax @ 10% 10,800
Add: Service Tax @ 8.40% (i.e 60% of 14%) 10,080
Total 142,620

S.N Particulars Am Rs
2 Conference room Charges 100,000
Add: Service Tax @ 8.40% (i.e 60% of 14%) 8,400
Total 108,400

S.N Particulars Am Rs
3 Lunch food charges 80,000
Add: Service Charges @ 8% 6,400
86,400
Add: VAT @ 14.5% 12,528
Add: Service Tax @ 5.60% (i.e 40% of 14%) 4,838
Total 103,766

S.N Particulars Am Rs
4 Audio visual arrangement 20,000
Add: Service Tax @ 14% 2,800
Total 22,800

S.N Particulars Am Rs
5 Evening function (Food and Drinks) (Shamiana) charges 150,000
Add: Service Charges @ 8% 12,000
162,000
Add: VAT @ 14.5% 23,490
Add: Service Tax @ 9.80% (i.e 70% of 14%) 15,876
Total 201,366

Hence from the above example we can see that a substantial portion of the bill goes on account of service charges, Luxury tax, VAT and service tax.

However in case of take away from restaurants service tax is not applicable since no element of service is involved and it’s a purchase and sale transaction.

Similarly in case of home delivery of food no service tax is applicable provided nothing is charged in the name of delivery charges. If anything is charged on account of delivery charges then service tax will apply on delivery charge portion only.

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33 responses to “VAT, Luxury Tax & Service Tax on Hotel & Restaurant industry”

  1. ANANDHAN says:

    What is the Luxury Tax on Single occupancy in Double Room. Room Tariff notified seperately for Double Occupancy and Single Occupancy.

  2. Uday Mishra says:

    Dear Sir
    This is regarding Service Tax liability on Room Services provided in a hotel like supply of food and liquor in rooms.

    1. As per the CBEC’S Circular NO. 139/8/2011-TRU, DATED 10-5-2011 Room service provided in a hotel room is neither Restaurant service nor Hotel Accomodation service. that is why it was not taxable prior to 01.07.2012.
    2. After 01.07.2012 it is a Taxable service and is also specified as declared service under Sec.66E entry no. 09.
    3. As per Rule 2C of Valuation Rules 60% abatement is to be given on restaurant service and 40% abatement is to be given on outdoor catering services. (this speaks specificaly about restaurant)

    Now the question is whether the room service be given abatement or not.
    If yes then 60% or 40%?

    Please clarify

    Thanks and regards

  3. RAMANRAMNATH says:

    Hi sir I am RamanRamnath from Hotel Maniam classic.reg.service tax is applicable for room service are not.Its middle class hotel v do good service for other out let v have paid tax but v have not collected for the room service only pls. give me some help thank you sir.

  4. mohan says:

    i want to know service tax for a service villa in wayanad dist. kerala. rate is 13,000. any other taxex applicable for service villas?

  5. somanagowda S H says:

    Luxury tax and service tax applicable on Hotel room Maintenance charges ?

  6. Beelajoseph says:

    what is the GST for wedding halls without food

  7. milana says:

    my brother has running function hall (without A/C) he is doing 20 functions with food in a month whether the service tax applicable or not what is the percentage.? from which date it will be affected

  8. Piyush Agrawal says:

    Dear Sir
    I have a doubt that Lets Take for a Example
    My company has hotel
    My company is registered with service tax for wide ranges of services.
    Is it possible for me to take abatemnt for one service and for the other one i do not opt for abatement.

  9. raghavandra says:

    dear sir,
    what the luxury tax rate for hotels and lodging in andhra pradesh after gst

  10. Shiv Shakti says:

    KIndly clear minimum applicability amount of Luxury Tax in Haryana State?
    Some professional are says minimum amount Rs. 2000 reduce form 24.9.2016.
    Any amount of the hotel room than charges Luxury Tax in Haryana

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