Hospitality Sector under GST

Hospitality Sector under GST

After the introduction of GST, various industries are affected due to it. Let us discuss the situation of Hospitality Sector under GST.

1. Background

The Indian hospitality industry has emerged as one of the key drivers of growth among the services sector in India. Due to the variety of businesses, the hospitality industry is usually one of the largest revenue producers for countries. The growth in the hospitality sector and its contributions to the GDP will continue to be substantially higher than other sectors of the economy on the back of huge tourism potential in the country. Hotel brands over the last decade and a half proliferated on the principle that the hotel sector is more a services-based industry than a realty industry. They have over this period organized the sector and are steadily becoming the bedrock of the hospitality industry in the country.

The hospitality industry used to pay multiple taxes (VAT, luxury tax, and service tax) under the erstwhile VAT regime. A hotel where the room tariff exceeded INR 1,000, was liable for service tax at 15 percent. An abatement of 40% was allowed on the tariff value, thus the effective rate of service is 9%. The Value Added Tax (ranging between 12 to 14.5%) and luxury tax, was applicable over and above this. However, for restaurants, there was 60% abatement which meant that the service tax was charged at an effective rate of 6% on the food & beverage bills, apart from VAT (12 to 14.5%). Bills for bundled services like social functions (seminars, marriage etc.), were taxed with an abatement of 30%.

In the erstwhile regime, the end consumer used to pay tax on tax, thereby increasing the cost. The hospitality sector did not get any input tax credit on the taxes they paid, as central taxes like service tax, could not be set off against state taxes (VAT) and vice-versa.

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2. Introduction to GST

Under the Goods and Services Tax, the hospitality sector stands to reap the benefits of standardized and uniform tax rates, and easy and better utilization of input tax credit. GST abolishes several taxes, leading to a reduction in procedural steps and easy availment and utilization of input tax credit. Under the GST regime, there will be only a single charge on the bill and it would give the customers a clear picture of the tax they are paying.