GST on hospitality services: Everything you need to know

As a nation, India has been on a path of transformation in the last decade. From a developing country to a major economic powerhouse, India has come a long way. Amidst all these developments, GST is one of the major tax reforms that the government has brought in India. GST or Goods and Service Tax is an indirect tax that applies to all taxes on the supply of goods and services. GST on cars has brought changes to the automobile sector as well, streamlining taxation for consumers and businesses alike.

The arrival of GST has brought significant changes in the hospitality industry, leading to a shift in the taxation system. The hospitality industry is a significant contributor to the Indian economy, and the new GST regime has increased the overall tax compliance, bringing benefits to the industry.

This article will provide you with comprehensive information on GST and how it affects the hospitality services in India. Understanding documents required for GST registration is crucial for businesses planning to implement GST in their operations, particularly in industries like hospitality.

Understanding GST

GST or Goods and Service Tax is a tax on the supply of goods and services. The GST system replaced the old and complicated indirect tax system that existed earlier in India. GST calculation is based on the transaction value and is levied at every stage of the supply chain.

With the introduction of GST, the aim was to create a unified tax structure across the country. This has led to a simplified tax system, minimising complications in the indirect tax regime and eliminating several hidden taxes. GST registration is the first step for any business wanting to comply with the new tax regime.

What is the hospitality industry?

The hospitality industry, with roots stretching back millennia in India and worldwide, encompasses a diverse array of sectors dedicated to service and customer satisfaction. It includes restaurants, hotels, resorts, motels, travel agencies, and more, all focused on providing experiences that cater to travelers and guests. At its core, the industry revolves around offering accommodation, food, beverages, and leisure services, aiming to create memorable and comfortable experiences for patrons. With its broad scope and constant evolution, the hospitality sector plays a pivotal role in global tourism and continues to adapt to meet changing consumer demands and preferences. For instance, GST state code helps businesses accurately file taxes based on their location.

GST on hospitality services

In the hospitality sector, GST applies to all services offered by hotels, resorts, and lodges. The government has levied GST at different rates depending on the services offered by the hotels. The rate of GST varies for different types of accommodation, such as budget hotels, luxury hotels, serviced apartments, etc.

The GST council has categorised hotels and restaurants into various rates, such as 5%, 12%, and 18%. The classification depends on several factors such as room tariff, specific facilities offered in the hotel, and the services offered in the restaurants.

The government has implemented different GST rates on accommodation based on various factors such as the room tariff and facilities provided. The GST rate on restaurants is 5% - 18%.

Pre-GST hospitality industry

Before GST, the hospitality industry in India operated under a complex tax regime with multiple taxes such as service tax, VAT (Value Added Tax), luxury tax, and others levied by different levels of government. Each tax had its own compliance requirements, leading to administrative complexities and higher operational costs. Input tax credits were limited and not uniformly available across all taxes, preventing businesses from offsetting taxes paid on inputs against their output tax liabilities. This fragmented tax structure often resulted in higher prices for consumers due to the cascading effect of taxes on goods and services.

Post-GST hospitality industry

The introduction of GST unified India's indirect tax structure, replacing the previous multiple taxes with a single tax across goods and services. This simplified tax regime significantly reduced the cascading effect and enhanced input tax credits availability for hospitality businesses. Uniform tax rates and streamlined compliance procedures under GST have improved operational efficiency, reduced costs, and enhanced competitiveness in the global market. The hospitality sector has seen benefits such as improved service quality, increased tourist influx due to reduced overall costs to consumers, and better integration of digital technologies to comply with GST requirements, thereby fostering growth and development across the industry.

Impact of GST on hospitality services

The introduction of GST has had a significant impact on the hospitality industry. The GST system has led to increased tax compliance, resulting in a more transparent system. With the GST system, the hospitality industry has a better understanding of the taxes that they need to pay and how it affects their bottom line.

The comprehensive GST regime not only brings uniformity in the tax structure across the country but also eliminates multiple taxes such as service tax, luxury tax, and other local taxes. This makes it easier for the guests to understand the taxes that they need to pay while staying at hotels.

GST has made the hospitality industry more transparent and efficient and has contributed to the growth of the Indian economy. The hospitality industry can focus on providing better services and experiences to the guests while being compliant with the new GST tax regime.

The introduction of Goods and Services Tax (GST) in India has had significant implications across various sectors, including healthcare. Until July 2022, healthcare services provided by doctors, hospitals, and medical professionals were exempt from GST. However, specific components within healthcare, such as hospital room rents, have seen changes in taxation post-GST implementation. Here is a look at the impact of GST on hospital room rents, detailing the applicable rates and SAC code (Service Accounting Code) classifications.

Positive impacts of GST on the hospitality industry

• GST has unified various taxes into a single tax structure for the hospitality industry, simplifying pricing across states.
• This uniform pricing strategy enhances transparency and makes it easier for consumers and businesses to understand costs.
• The hospitality sector has experienced increased tourist influx due to simplified tax procedures under GST, making India more tourist-friendly.
• The streamlined tax structure has reduced the overall tax burden and eliminated the cascading effect of multiple taxes.
• Improved service quality in hospitality is noted as businesses can now focus more on customer experience rather than tax complexities.
• Availability of input tax credits allows hospitality providers to claim credits efficiently, supporting cost management.
• Adoption of digital technologies for GST compliance, including online filing of GST returns, has improved tax administration and accuracy.

Negative impacts of GST on the hospitality industry

• GST initially imposed higher tax rates on luxury services, increasing costs for high-end hotels and resorts, impacting their competitiveness.
• There's a pressing need for further reduction in tax rates to align with global standards, as lower taxes in countries like Singapore make them more attractive tourist destinations.
• Transition complexities and new compliance requirements strained resources, particularly for smaller hospitality businesses, increasing operational challenges.
• The shift to GST required proficiency in technology for tax filing, posing a burden on rural and urban establishments alike, escalating compliance costs.

Fluctuating GST rates on hotel room tariffs caused confusion and administrative burdens, disrupting revenue streams temporarily.