From Rs. 15.24 lakh crore (US$ 234.03 billion) in 2017 to Rs. 32.05 lakh crore (US$ 492.21 billion) in 2028, the Indian hospitality and tourism sector is predicted to grow. The impact of Goods and Services Tax GST in the hotel industry in India has been significant since its implementation in 2017.
Prior to GST, hotels were subject to multiple taxes, such as luxury tax and service tax, at different rates in different states. However, with the introduction of GST, all these taxes were replaced with a single tax, which led to a more streamlined tax system.
The GST rate for hotels varies depending on the room tariff, with rates ranging from 0% to 28%. The GST impact on the hotel industry has been felt across the entire supply chain, from hotel owners and operators to guests and travel agents.
The implementation of GST on hotels has also led to changes in pricing strategies and business models, as hotels have had to adjust to the new tax system to remain competitive in the market. Overall, the impact of GST on the hotel industry has been significant and has played a crucial role in shaping the industry since its introduction.
Under the former VAT regime, the hotel sector was subject to multiple taxes (VAT, luxury tax, and service tax), just like every other sector of the Indian economy. A hotel was required to pay service tax at a 15% rate if the room rate was more than Rs. 1,000.
The tariff value was subject to a 40% abatement, which reduced the service tax to an effective rate of 9%. On top of this, there would be the luxury tax and the Value Added Tax, which has a range of 12% to 14.5%.
However, there was a 60% abatement for restaurants, which meant that, aside from VAT (12% to 14.5%), the service tax was levied at an effective rate of 6% on the F&B bills. Bills for packages of services, such as social events (marriage, seminars, etc.), were subject to a 30% tax reduction.
The VAT system’s cascading effect, in which the final consumer paid a tax on tax, raised the overall cost. Since central taxes like service tax could not be offset against state taxes (VAT) and vice versa, hoteliers and hospitality enterprises did not receive any input tax credits on the taxes they paid.
Get a Free Demo of – GST Billing and Accounting Software for Food and Beverage Sector
The GST rate on hotel rooms in India varies based on the declared room tariff per night. Here’s a breakdown of the structure:
Along with room bookings, hotels often provide bundled services such as restaurant meals, spa services, banquets, or conference halls. These attract different GST rates:
With BUSY Accounting Software, hotel businesses can automate tax classification, apply the correct GST rate on each service, and generate itemized GST-compliant invoices, ensuring accurate billing for both room and non-room services.
Under the former VAT regime, the hotel sector was subject to multiple taxes (VAT, luxury tax, and service tax), just like every other sector of the Indian economy. A hotel was required to pay service tax at a 15% rate if the room rate was more than Rs. 1,000.
The tariff value was subject to a 40% abatement, which reduced the service tax to an effective rate of 9%. On top of this, there would be the luxury tax and the Value Added Tax, which range from 12% to 14.5%.
However, there was a 60% abatement for restaurants, which meant that, aside from VAT (12% to 14.5%), the service tax was levied at an effective rate of 6% on the F&B bills. Bills for packages of services, such as social events (marriage, seminars, etc.), were subject to a 30% tax reduction.
The VAT system’s cascading effect, in which the final consumer paid a tax on tax, raised the overall cost. Since central taxes like service tax could not be offset against state taxes (VAT) and vice versa, hoteliers and hospitality enterprises did not receive any input tax credits on the taxes they paid.
Get a Free Demo – Best Billing and Invoicing Software
The hospitality industry will profit from standard and uniform tax rates under the Goods and Service Tax and the simple and effective use of input tax credits. The sector draws more foreign tourists than before as the overall cost to the end customer declines.
There are several benefits to this new tax system that could support the industry’s growth in the long run, and in theory, this increases government income. Breakfast, for example, was taxed separately under the VAT system but will now be taxed under the GST system as a bundled service. Let’s take a closer look at the rates for this sector:
GST Rates For Hotels Based On Room Tariff (with effect from 1st October 2019)
Tariff Per Night | GST Rate |
---|---|
Rs.1,000 | No Tax |
Rs.1,001 – 7,500 | 12% |
= or > INR 7,501 | 18% |
GST Rates applicable for Hotel Industry |
Also Know About: GST accounting software
Particulars | Amount | Amount |
---|---|---|
Basic Room | Before GST | After GST |
Room Tariff | 2700 | 2700 |
Luxury Charge on stay (10% as per Maharashtra) | 270 | – |
Service Tax @ 9% | 243 | – |
GST @ 12% | – | 324 |
Total Bill | 3213 | 3024 |
Room With Complimentary Breakfast | Before GST | After GST |
Room Tariff | 2200 | 2200 |
Complimentary Breakfast | 500 | 500 |
Luxury Charge on stay (10% as per Maharashtra) | 220 | – |
Service Tax @ 9% | 198 | – |
VAT @ 14.5% on food | 73 | – |
GST @ 12% | – | 324 |
Total Bill | 3191 | 3024 |
Room With Complimentary Meals | Before GST | After GST |
Room Tariff | 8000 | 8000 |
Complimentary Meal | 2500 | 2500 |
Luxury Charge on stay (10% as per Maharashtra) | 800 | – |
Service Tax @ 9% | 720 | – |
VAT @ 14.5% on food | 363 | – |
GST @ 18% | – | 1890 |
Total Bill | 12383 | 12390 |
A breakup of the hotel prices pre and post-GST Implementation |
Also Know About: Busywin Software
Explore Here – Advantages and Disadvantages of GST
The GST rate on hotel accommodation is determined based on the transaction value per room per day. Different tax slabs are applied depending on the room tariff charged to the customer.
Amendment (Effective from 18th July, 2022): As per the 47th GST Council Meeting, significant changes were made to the GST rate structure for the hospitality sector. These amendments impacted the categorization of room tariffs under GST slabs and are important for businesses to stay compliant.
Over the years, the GST Council has introduced key changes affecting hotel tariffs to promote tourism and simplify tax compliance.
In the 37th GST Council Meeting (September 2019), the GST on hotel room tariffs was revised to align rates with actual charges (not declared tariffs).
The 47th GST Council Meeting (June 2022) clarified GST on services like banquets and room rentals, especially when offered as part of composite hotel packages. It also reaffirmed that businesses renting rooms in guest houses or hostels may attract GST if they meet registration thresholds.
BUSY Software stays updated with all Council changes and automatically applies the correct GST rates in billing, helping hotel owners stay compliant effortlessly.
The Reverse Charge Mechanism (RCM) applies when a hotel procures goods or services from an unregistered vendor (e.g., a local decorator for an event). In such cases, the hotel (recipient) must pay GST directly to the government, not the vendor.
RCM also applies in specific IGST scenarios, like:
BUSY Software allows businesses to identify RCM transactions, generate self-invoices, and track ITC eligibility, ensuring that reverse charge liabilities are paid and reported correctly in GSTR-3B.
Hotels often struggle with complex billing structures involving multiple services like room rent, restaurant dining, banquets, spa, and laundry. Key challenges include:
BUSY Software simplifies this by enabling multi-service invoicing, rate-wise tax splitting, auto-calculated ITC, and accurate GST return filing. It supports hotel businesses in managing all aspects of GST in a single, unified platform.
GST has undoubtedly simplified the tax structure for the hospitality industry by bringing all services under a unified system. However, with multiple rate slabs, bundled offerings, and evolving council decisions, compliance can be complex, especially for hotels offering various services.
While the updated rules bring clarity, they require hotels to be more vigilant with billing, classification, and return filing. This is where BUSY Accounting Software becomes an essential tool, offering automation, accuracy, and compliance tracking tailored for hotel operations.
Using BUSY, hoteliers can reduce manual errors, ensure faster invoicing, and focus more on delivering quality service than chasing tax compliance.