Hotel Industry in GST – Comparison between current rates vs GST Rates

0

Hotel Industry in GST – Comparison between current rates vs GST Rates

Hotel Industry in GST – Comparison between current rates vs GST RatesHospitality industry is a versatile field encompassing accommodation and entertainment services, accounting, food and beverage, event management and above all, guest satisfactionNow check more details for “Impact of GST on Hospitality Industry” from below…

Hotel Industry in GST

Impact Analysis of GST On Indian Hospitality Industry

  • i.Hotel Sector is always on priority by Govt and as such tax reliefs in form of abatement / exemptions is provided to them under notification 26/2012-ST and 25/2012-ST
  • ii.Hotel Industry including tourism contributes 6.23% of national GDP and 8.78% of total employment in the country.
  • iii.This industry definitely help in building the nation and is going beyond the borders.

Loopholes In Model GST Law

Present Applicability of Taxes on Hospitality

Taxes imposed by states currently

  • VAT (Varies from 5 to 20% depending on the act of the state
  • Luxury Tax (Generally depends on the room tariff and the state [generally varies from Nil to 12%)

Taxes Imposed by Centre Currently

  • Service Tax
  • 1. Varies on the type of service eg. Catering, Restaurant, Accommodation etc.
  • 2. Hotel Accommodation (Abatement @ 40%) s.t. Notification 26/2012 and 25/2012
  • 3. Restaurant (Service Portion is 40%)
  • 4. Catering (Service Portion is 60%)
  • 5. Central Tax is levied despite of the state taxes.
  • 6. Renting of Banquets etc (Abatement of 30%)
  • Combine VAT + Service Tax + Luxury Tax , the levy would range between 20% to 27 %.
  • Cascading effect due to non set off of Central Tax against State Tax or vice versa.
  • Present Service Tax Rate is 14% + 0.5% + 0.5% = 15 %.
  • i.Cenvat Credit of Service Tax is available
  • ii.Cenvat Credit of SBC = Not Available
  • iii.Cenvat Credit of KKC = Available

GST Rates on Hospitality Sector as approved by council

Description of Service Rate with ITC
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 %Full ITC
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%Full ITC
Supply of Food/drinks in restaurant having licence to serve liquor 18% Full ITC
Supply of Food/drinks in restaurant having facility of air-conditioning or central heating at any time during the year 18%  Full ITC
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% Full ITC
Supply of Food/drinks in air-conditioned restaurant in 5-star or above rated Hotel 28% Full ITC
Supply of Food/drinks in outdoor catering 18% Full ITC
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% Full ITC
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% Full ITC
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% Full ITC

GST Rates Comparison with VAT Rates

Nature of Services Rates in GST Regime Rates in VAT Regime
Restaurant Services

  • i.Supply of Foods/Drinks
  • ii.No AC or CAHS anytime during the year
  • iii.No Liquor License
12% Full ITC Available
  • VAT on beverages:14.5%
  • Vat on cooked Food Except in Restaurants and Hotels categorised as 3 star or above and heritage hotels as ‘Grand’/’Classic’ : 5.5%
  • VAT on cooked food in 3 star and above : 14.5%
  • Vat on Food Served in Rest : 5.5%
  • Pizza, Burgers, Sandwich, Hotdogs etc : 5.5%
  • Under the Brand name by branded chain of cooked food : 14.5%
Restaurant Services

  • i.Supply of Foods/Drinks
  • ii.Have License to serve liquor
18% Full ITC Available

GST Rates Comparison with Service Tax Rates

Nature of Services Rates in GST Regime Rates in Service Tax
Restaurant Services

  • i.Supply of Foods/Drinks
  • ii.No AC or CAHS anytime during the year
  • iii.No Liquor License
12% Full ITC Available Exempted 25/2012- ST dated 01.07.2012Entry No. 19
Restaurant Services

  • i.Supply of Foods/Drinks
  • ii.Have License to serve liquor
18% Full ITC Available If AC or CAHC during the year : Taxable (40% shall be service portion on total amount chargedand hence ST will be charged on the same.Otherwise Exempted 25/2012- ST dated 01.07.2012

Entry No. 19

Restriction on CC on goods classifiable under chap 1 to 22 of CETA 1985.

Restaurant Services

  • i.Supply of Foods/Drinks
  • ii.Air Conditioned Restaurant
  • iii.5 Star Hotel or Above Category
28% Full ITC Available Taxable40% shall be service portion on total amountcharged and hence ST will be charged

Restriction on CC on goods classifiable under chap 1 to 22 of CETA 1985. on the same.

  • a)Renting of hotels, inns, guest houses, clubs, campsites or other commercial places meant for
  • b) residential or lodging purposes
  • c)having room tariff Rs.1000 and above but less than Rs.2500 per room per day
12% With Full ITC
  • a)Governed by Not 26/2016; E: 6
  • b)Abatement : 40%
  • c)CC allowed on input services only
  • d)Exemption 25/2012 ; E 18 if declared tariff of a unit of accommodation below 1000/- or equivalent.
  • a)Renting of hotels, inns, guest houses, clubs, campsites or other commercial places meant for
  • b) residential or lodging purposes
  • c)having room tariff Rs. 2500 and above but less than Rs.5000 per room per day
18% Full ITC Available
  • a)Governed by Not 26/2016; E: 6
  • b)Abatement : 40%
  • c)CC allowed on input services only
  • a)Accommodation in hotels including 5 star and above rated hotels, inns, guest houses, clubs, campsites or
  • b) other commercial places meant for residential or lodging purposes,
  • c)where room rent is Rs 5000/- and above per night per room
28% Full ITC
  • a)Governed by Not 26/2016; E: 6
  • b)Abatement : 40%
  • c)CC allowed on input services only
Supply of Food/drinks in outdoor catering 18% Full ITC Available portion on total amountcharged and hence ST will be charged on the same.Restriction on CC on goods classifiable under chap 1 to 22 of CETA 1985.
a)Bundled service by way of supply of food or any other article of human consumption or any drink, in a premises (including hotel, convention centre, club, pandal, shamiana or any other place,b)specially arranged for organizing a function) together with renting of such premises 18% Full ITC a)Governed by Not 26/2016; E: 4b)Abatement : 30%

c)CC allowed on input services only

Section 115 of GST – Interest on refund of amount paid for admission of appeal

Impact of GST on Hospitality Industry

  • a)This industry presently faces multiple tax regime and is a victim of tax over tax.  GST will help reduce multiple taxation, giving a significant boost to the hospitality and tourism industry.
  • b)The states which apply luxury tax on rack rates; like Tamil Nadu, Gujarat, Delhi and Andhra Pradesh, and those states which have high luxury taxes; like Kerala, have a total tax summed up to 19-25 percent. The effect of GST will be positive, leading to a considerable reduction of 3.5-7% in taxes respectively
  • c) The states which levy lower luxury rates like Maharashtra, the impact of GST will be fairly neutral.
  • d)Service providers having centralized registration will have to get registered in each state whether providing hotel services on own account or through agent (franchise).
  • e)Service providers will have an option to take different registration or separate business verticals which needs to be examined on case to case basis.
  • f)The procedure for all the invoices / receipts towards inward and outward supplies will become cumbersome as each one of them will have to be uploaded in the system.
  • g)The frequency and number of returns to be filed will go up.
  • h)Alcohol is out of the purview of GST net. The taxation on alcohol would be different than the single GST rate. Thus, the hotel industry would not be able to avail the input credit on the alcohol which will have a negative impact on this sector.
  • k)In the luxury taxes act of some states, there are exemptions available on the basis of rate per day of accommodation. Such exemption on rate basis may not be available in the GST regime.
  • l)Now, in GST Regime the ITC on Inputs, Capital Goods and Input Services shall be available.
  • m)As per section 10(1)(b) of CGST/SGST Act, the services provided by the restaurants whose aggregate turnover in the previous financial year does not exceed 50 lacs shall pay 2.5% as CGST and 2.5% as SGST, totalling to 5% under composition scheme. The composition restaurant suppliers will not be entitled to input tax credit.
  • n)Section 9(3) – A draconian provision for the restaurant and hotels.
  • o)Some questions still remain unsettled / unanswered. There are bound to be classification issues as well as litigation. Eg. Ordering through groupon/nearbuy, having dinner in a room of hotel.

LEAVE A REPLY

Please enter your comment!
Please enter your name here