GST Impact GST Impact

Impact of GST on Hospitality Sector Impact of GST on Hospitality Sector

According to a report, Demystifying the Indian Online Traveller, Indian hotel industry is expected to observe a growth of USD 13 billion by the year 2020. Another data says that foreign tourist arrival (FTA) observed an increase to 10.66 Lakh in January 2018 as compared to 9.83 Lakh in January 2017.

Both the statistics show that the Indian hotel industry is one of the fastest growing sectors of the country. However, GST impact on hospitality sector is both good and bad. On the one hand, it is expected to attract more customers because of decreased rates for end-users. On the other hand, the complicated compliance structure is being frowned upon.

Although the unified tax regime may have long-term benefits, it is still receiving high criticism from around the country. Most of the hotels have to pay 18% GST, which is the second highest tax slab available.

Although the unified tax regime may have long-term benefits, it is still receiving high criticism from around the country. Most of the hotels have to pay 18% GST, which is the second highest tax slab available.

Hospitality Sector Tax before GST Implementation


Hospitality Sector Tax before GST Implementation

Before GST implementation, a hotel room that had tariff more than INR 1,000 came under service tax of 15%. After abatement, this value was brought to somewhere around 8-10%. Then, Value Added Tax (VAT), which ranges from 12% -14.5%, along with luxury tax, was applied on this price. Similarly, for restaurants, service tax after abatement was 6% and VAT was applied above it.

Check Video: Cancellation of GST Provisional Registration

Impact of GST on the Hospitality Sector

GST's impact on the hospitality sector is overall positive, as with reduced end-user costs, the industry will likely attract more customers and tourists. Additionally, the regime is expected to improve government’s revenue. It will have a long-term positive impact, and the tax structure will be further simplified for end-customers as well as hotels.

Here are GST rates on hospitality services:

One-Night Tariff GST Rate
Less Than INR 1,000 Not applicable
INR 1,000 To 2,500 12%
INR 2,500 To 7,500 18%
More Than INR 7,500 28%

Read More: Reverse Charge Mechanism (RCM) under GST

Understanding GST Regime with an Example

Room Details Pre GST Post GST
Charges Or Tariff INR 2,000 INR 2,000
8% Luxury Charge INR 160 -
9% Service Tax INR 180 -
12% GST Tax - INR 240
Final Amount INR 2,340 INR 2,240

Impact of GST on the Hospitality Sector


Benefits of GST on the Hospitality Sector

  • With the removal of multiple taxes and VAT’s cascading effect, taxation is streamlined and simplified. The end-customers won’t have to pay a series of taxes on food and beverages and hotel bills.
  • Taxation processing and calculation have been made easier and time-saving for the hospitality industry.
  • Previous tax regime was complicated to customers and they were not able to recognize the correct tax order. With unified tax system, it is hassle-free for end-users to cross-check and understand the taxation structure.
  • The hospitality industry can avail the benefits of input tax credit, which means that the hotels can reduce the tax already paid on input while paying the output.

Check Video: GSTIN Update B2C

Disadvantages of GST for Hospitality Services

  • The hospitality industry is facing multiple issues regarding the implementation of GST. Compliance and maintenance process of GST is complicated as there are multiple GST rates (5, 12, 18, and 28) for different categories of services and goods offered. To avail input tax credit’s full advantage, businesses have to match outputs and inputs based on the tax rate applied.
  • Although GST may have reduced end-user prices, if hotels spend extra on maintaining compliance, they end up charging more to customers. This will ultimately reduce the positive impact of GST in decreasing end-user costs.
  • If SMEs fail to buy products from registered dealers, they’ll not be able to avail benefits of the input tax credit.
  • The complicated structure may lead to the formation of a parallel economy where users may opt out of receiving bills. It will create numerous undocumented transactions.
  • Many neighbouring countries have 5% to 10% GST tax slab for hospitality services. However, in India, most hotels fall under the tax slab of 18% to 28%. This can negatively impact the tourism industry.

Also Read: Issues in Filing GST Returns

GST Impact on the Hospitality Sector: A Tough Journey

As GST is still in its initial stages, it puts forth various challenges. Many hospitality businesses are unable to efficiently maintain compliance and understand how to correctly pass down the input credit tax. Additionally, there are various tax slabs, which make everything more complicated. If you want to understand the GST tax regime for the hospitality sector and stay compliant, check out blog for complete information.

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