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Knowledge BaseDecoding GST Provisions in Hotel Industry

This article aims to provide an understanding of the GST applicability and rates in the hospitality industry. In the hospitality industry, we commonly encounter three types of services: Hotel Accommodation, Restaurant services, and Outdoor catering.

Tax rate in case of Accommodation service: –

The tax rate on room rent in hotels is determined by the value of the room rent itself. If the value of the Room rent hired out is up to Rs. 7,500 per day, the GST rate is 12%; otherwise, it is 18%. Previously, there was an exemption for room rent up to Rs. 1000, but this exemption was withdrawn w.e.f. 18th July 2022. Hence, room rent is taxable from rupee one.

Additionally, in the initial phase of GST, instead of “value of supply”, “Declared tariff” was seen to check the applicability of 12% or 18%. But it is omitted w.e.f. 27th July 2018. Now, the sole determinant for deciding whether the accommodation service is subject to 12% or 18% is the Value of the room rent.

Value of Supply GST Rate ITC Available
0 to 7500 12% YES
>7500* 18% YES

Tax rate in case of Restaurant service: – For determining the applicable tax rate for restaurant service, Location of Restaurant is very crucial. For e.g., If a restaurant is situated in five-star hotel, where “declared tariff” for room per day is more than 7,500, then a restaurant needs to charge 18% and it is eligible for ITC on inputs, input services and capital goods.

However, if restaurant is not situated in such hotel or it is operating standalone then 5% GST rate shall be applicable. But, in such case it is not eligible to claim ITC. Same logic applies to outdoor catering services also, means if outdoor catering services provided in the hotel where room rent is more than 7500 per day then GST @ 18% with ITC otherwise GST@5% without ITC.

Whether hotel owns the restaurant or not, is irrelevant for determining the tax rate of restaurant services.

The term “declared tariff” refers to the published room charges displayed at hotel’s counter or on a hotel’s website or the website of any agent, without excluding any discounts offered on these charges. If declared tariff for room per day is more than 7,500 but some discount offered to customers and net amount becomes below 7,500 then also restaurant services in this hotel will be taxable at 18% because here, we are concerned with only declared tariff and not the value of supply.

An important point to consider is that when deciding the tax rate (either 18% or 5%) for restaurant services, the declared tariff of ANY room in the hotel is considered into account, not just the rooms that have been hired out.

Applicability of GST rate for restaurant services in different situations

Particulars Serial NO (9963) GST Rate
Standalone Restaurants including takeaway 7(ii) 5% without ITC
Standalone outdoor catering services or food delivery services 7(iv) 5% without ITC
Restaurant Services other than at specified premises* 7(ii) 5% without ITC
Restaurants Services at specified premises* 7(vi) 18% with ITC
Outdoor Catering provided at specified premise/hotelier of specified remise/restaurant operator at specified premise 7(vi) 18% with ITC
Services by cloud kitchens/central kitchens 7(ii) 5% without ITC

*Specified premises means premises providing ‘hotel accommodation’ services having declared tariff of any unit of accommodation above Rs. 7,500/- per unit per day or equivalent.

Tax rate in case of Outdoor catering service: –

Particulars Serial NO (9963) GST Rate
Outdoor catering services 7(v) 5% without ITC
Outdoor Catering provided at specified premise/hotelier of specified premise/restaurant operator at specified premise 7(vi) 18% with ITC

TAXABILITY IN THE CASE OF ADDITIONAL SERVICES PROVIDED TO CUSTOMERS BY HOTEL OWNER LIKE AIRPORT PICK UP AND DROP, SPA, SALON, ETC.: –

If different services are provided to customer and separate consideration is charged for all services and not single price (packaged) is charged, then in such case taxability will be done as per respective tax rate of such services.

However, if hotel owner provides all these facilities by charging single consideration, then we need to check the concept of Composite supply and Mixed supply. Let we understand the tax treatment in case of composite supply and mixed supply.

COMPOSITE AND MIXED SUPPLY: –

  • If 2 or more individual supplies of goods or services, or both, for a single price then it can be either Mixed supply or Composite supply. In case of Composite supply these 2 or more supplies are naturally bundled together. And if it is not naturally bundled, then this will classify as Mixed supply.
  • In the scenario of a mixed supply, the highest applicable rate among the supplies is applied to the entire bundle. Conversely, for a Composite supply, the rate of the principal supply is applied to the entire bundle.
  • To decide if services are naturally bundled together, it’s based on what’s commonly done in that type of business, in that area.
  • However, there is no thumb rule to determine whether a service is naturally bundled or not, however if customer has an option to choose the goods or services or both, and if hotelier is charging separate consideration for this, then it will be considered as separate supply or distinct supply and not composite or mixed supply.
  • It is normal in the hospitality industry to provide few complimentary services or few services as a bundle. For example, in the FAQ’s issued by the Government. It’s clarified that breakfast is usually an incidental part of the accommodation service. It will be treated as composite supply and the accommodation being the principal supply, tax rate of accommodation will be applicable to breakfast as well.
  • Extra Bed Charges: – Hotel may charge extra for an additional bed. These charges are part of accommodation service and should be taxed accordingly. Be cautious, as exceeding 7,500 in total “Value of supply” changes tax rate from 12% to 18% for accommodation service.
  • Airport Pick and Drop: When hotels offer airport transportation, usually a separate service from accommodation. If it’s provided based on customer choice, it’s an independent service, distinct service. It will be charged based on its own GST rate as it is not construed as mixed or composite supply in this case. Additionally, these charges will not be considered into the calculation of the ‘Value of Supply’ when assessing the Rs. 7,500/- threshold for determining whether the 12% or 18% GST rate applies for accommodation service.
  • Laundry, Spa, Salon, etc.: – These services are usually independent and charged separately, not a composite or mixed supply. They have their own tax rate, usually 18%.
    Proper Care should be taken while examining the different treatment for composite and mixed supplies. Wrong classification of mixed supply as composite supply would lead to differential tax demand in future.

EXPLORING VARIED SCENARIOS IN HOTEL ACCOMODATION, RESTAURANTS, AND ANCILIARY SERVICES: –

Scenario: – what will be rate of tax if any person stays in the Hotel and come for restaurant services separately and hotel charges extra amount for this?

These both are distinct supplies (separate supplies) so taxable at separate rate for accommodation 12%/18% and for restaurant services 5% respectively.

No need to raise separate invoices. Single invoice by mentioning both services with distinct SAC allowed.

Room services SAC: 996311; Restaurant services SAC: 996332

Scenario: – If a café and restaurant within a hotel only provide restaurant services then, what tax rate applies?

Such restaurant service shall be taxable at 5% (assuming declared tariff per day is less than Rs. 7500/-) under SAC: 996332

Scenario: – If banquet hall is provided with food (outdoor catering service) and other services in hotel then what tax rates apply?

Renting of hall and food provided for same occasion, same event will constitute a composite supply. And shall be taxed at 5% mandatorily. Entry No. 7 (v) to Notification 11/2017-CTR.

Other services like mike given on rent, music system provided, decoration service, laundry service, cab hiring services shall be taxable at 18% and value of all such services should be clearly identified and separately mentioned in the invoice.

However, if other services are provided in the capacity of pure agent, then value of such service will not attract liability of tax.

Scenario: – If only a banquet hall is rented out without any other services, what tax rate applies? –

In this case, banquet hall continues to be taxed at 18% under SAC: 996334.

DUAL RATE DILEMMA: – CHANGING DECLARED TARIFF ON SOME SPECIFIC OCCASION

Scenario: – If company declare the room tariff above Rs. 7500 for some specific occasion then is it possible to charge 18% on food and beverage (F&B) provided in its restaurant, cafeteria, and banquets for those specific days and 5% for rest of the months?

Yes, if declared tariff is more than Rs. 7500/- on some specific days then hotel must charge 18 % on Food & Beverages on those days.  While in the remaining period where room tariff is less than Rs. 7500 then hotel should apply 5% GST on F&B.

But for doing this proper track record of utilization of inputs is required because if we charge 5% on F&B then we are not eligible for ITC. While when we charge 18% on F&B then we are eligible for ITC. Hence, track record of purchases as well as utilization of inputs is very vital.

There is no restriction in the law to charge different tariff for different period in the same financial year.

(Reference: – RE: M/S. MANGALDAS MEHTA AND CO. LIMITED, (A. A. R. – GST – Guj.)

Scenario: – If company’s declared tariff is remained below Rs. 7,500/- on most of the time of the year but it goes above Rs. 7,500/- on a particular day, then for the ENTIRE year 18% is taxable on restaurant service retrospectively?

No, 18% is leviable on Restaurant services only on that day when declared tariff of ANY room in hotel goes above Rs. 7,500/- per day. But again, ITC on input used on that day to make outward supply is not available in this case.

Scenario: – Can the hotel start applying the 5% GST rate on Restaurant service in mid-year due to the reduced declared tariff (i.e., <7,500), or we can start only from new year?

We can shift to 5% tax rate (Without ITC) from mid-year itself, when declared tariff goes below, Rs. 7,500/- So, no need to wait for new financial year. But, again proper track record of utilization of inputs is required when 2 tax rates (5% without ITC and 18% with ITC) is leviable in same financial year.

IMPACT ON INPUT TAX CREDIT (ITC) ON INPUTS, INPUT SERVICES AND CAPITAL GOODS USED BY HOTEL: –

  • If input, capital goods and input services are used for hotel accommodation, whether declared tariff is below or above Rs. 7,500, ITC is available.
  • If it is used for restaurant or outdoor catering, then if declared tariff is below Rs. 7,500 then ITC is not available and if declared tariff is above Rs. 7,500 then eligible for ITC.
  • If it is used for providing composite supply of renting of banquet hall along with food (which is taxable at 5 %), ITC is not available.
  • For common inputs, input services and capital goods reversal under Rule 42 and 43 is required to be followed.

PLACE OF SUPPLY OF SERVICE FOR HOTEL INDUSTRY

  • Thus, in the case of the hotel industry the place of supply will be the location of immovable property. AND in the case of restaurant location where the services are performed.
  • In case of Event, If the recipient is register, then the place of supply is where the recipient is registered, otherwise the place where service is performed.