All about Hotels…..Provisions for Hotels under the Goods & Services Tax Act, 2017

By Bhavya Popat, Advocate

Hospitality industry is one of the fastest growing industry in the Country. Like any other manufacturing, trading & service Sector, post implementation of Goods & Services Tax, the hospitality industry has also seen major changes in the Tax Structure. The industry had to adjust to the new regime and change the way of its operations. In this article, I have tried to explain points and issues concerning to the Hospitality Industry.

1. Classification HSN/SAC Code:

There are basically two categories of services included in hospitality industry.

1. Accommodation service
2. Restaurant Service

Both the services are covered under the heading 9963 under the classification of services. The chapter of both the service covered is 99 and the heading is 63. The service code of the both are different.

1. Accommodation service 9963 11
2. Restaurant Service 9963 31

2. History and amendments of G.S.T. rates on Restaurant and hotel accommodation:

There are many question that has been frequently asked to the Tax Professionals. I have tried to sum up some of the most frequently asked question from the hotel and industry.

Frequently Asked Questions:

1. Has the Declared Tariff any concerns with respect to the determination of the rate of GST on Hotel room rent presently?

Answer: No, Presently the declared tariff has got no relevance with the determination of the GST rate on Hotel room rent. Presently the rate of GST on room rent is determined by the value of supply of a unit of accommodation.

2. Has the Declared Tariff any concerns with respect to the determination of the rate of GST on Restaurant presently?

Answer: Yes, the rate of Restaurant, situated within a hotel (Residential) is determined by declared tariff of that particular hotel.

3. The declared tariff of our client hotel is 7600 during Diwali days. Although no booking was done at rates over 7500/-. Would he be liable to pay GST on restaurant @ 18%?

Answer: Yes, for the determination of rates for restaurant, the declared tariff is important. Once the declaration is over 7500/- the liability to pay GST would be at 18%.

4. It is possible and practical to make an rental agreement and separate the restaurant portion so as to take the benefit of 5% rate under GST, even in situation where the room rent goes over 7500/-?

Answer: No, it is not possible and practical to make an rental agreement and separate the restaurant portion as the key thing determining the rate is “Specified Premises” Once the restaurant is situated within the “Specified Premises”, i.e. the hotel, it will be treated as one unit only.

5. One has the option to select the GST rate of 18% and claim credit even though the restaurant is not in specified premises?

Answer: No, The Restaurant has not got any option to select the rate of 18% and have the option of claiming the Input Tax Credit. It is mandatory by law to opt for 5% GST rate for them.

6. Do hostel providing services to students enjoy any exemption under GST?

Answer: No, the hostel do not have any specific exemption. After the removal of the exemption of room rent for hotel accommodation, up to 999/-, it becomes necessary to plan the GST for hostels. If the services of hostel is provided by an educational institution to its students, they may claim the exemption under entry 66 of rate notification 12/2017, dt. 28.06.2017.

7. I have charged tariff of Rs 6000/- per room. The extra person cost comes to Rs 1500/-. Thus, the room charge along with extra person is 7500/-. Would I be liable to be taxed at 18% or 12%?

Answer: You will be liable to pay GST @ 18% as the value of supply for a particular unit (Room) has been 7500/- or more. It is important to note that now the total revenue fetched by a room is to be taken care of for determining the rate under the GST Regime.

8. I have sold a package in AP (American Plan) which includes all the meals for a couple for Rs. 9000/- including extra person. Out of these, my room tariff is 4500/- and rest of the 4500/- is towards the food, i.e. Breakfast, Lunch and Dinner. Will I be liable to be taxed at 18% or 12%?

Answer: When a room is sold as a package, the said supply of service is to be treated as Composite Service where the main supply would be Hotel Accommodation. Here the value of supply of a unit shall be said to be 7500 or more and 18% GST shall be applicable on such transection.

9. I am selling a package of Rs 5000/- on CP (Room with Breakfast) basis. Out of the amount of Rs 5000/- Room charges are 4500/- and breakfast charges are 500/. Do I have to charge 12% GST on whole amount of Rs 5000/- or I have an option to segregate 4500/- as GST on room taxed at 12% and 500/- as under restaurant service?

Answer: No, you don’t have the option to segregate both service when sold as a package. Your hotel is selling a package which shall constitute Composite service. In case of Composite service the rate of principle service shall be applicable and thus, the liability of GST shall be 12% on amount of package i.e. 5000/-

10. What are the rates on Outdoor catering presently?

Answer: The rates on Outdoor catering has been made parallel to restaurant service. Broadly speaking the rate on GST on Outdoor catering other than the specified premises is 5% without ITC. Whereas the rate on Outdoor catering in Specified Premises is 18% with ITC. Here specified premises shall have the same meaning as per the restaurant services.

11. Is there an option for the restaurant to opt for Composition?

Answer: Yes, Restaurant do have an option to opt for composition. In such case the rate of GST will be 5%. But in my personal view it is normally not prudent to Opt for composition for restaurant business, as the rate of tax are 5% in both Composition and Non Composition. If a restaurant has opted for composition, they shall not be eligible to charge GST from its customers. On the other hand, the restaurant having not opted for composition can charge the 5% GST from the customers.

These are my views on GST on Hotels and Restaurant. I hope this article may prove helpful to tax fraternity and also the businessmen. In my view, the changes under the GST for this sector has created many confusion. There is lack of clarity in many matters in the industry. FAQ has been specifically meant to clarify some of the important questions from the industry. I shall request readers to send any more such question and I shall try to reply or cover the same in updated version of the article.

(This article is also published in the Sales Tax Journal published by The Gujarat Sales Tax Bar Association)