Hospitality Industry – GST Tax Rates and Input Tax Credit

With the implementation of GST, the hospitality industry in India certainly benefited from the privileges of a single tax regime. Such a tax structure brought uniformity to the prevailing Indirect tax system along with subsuming multiple taxes. Further, it has helped in reducing the cascading tax effect that increased the final cost for the end consumer in the previous indirect tax regime.

India’s Goods and Services Tax (GST) has had a big impact on the hospitality industry. Whether you run a small guesthouse or a large luxury hotel, the law has changed how you handle monthly accounting. By staying up to date about current tax rates and possible available and blocked credit, one can keep the tax burden as least as possible and keep customers happy with lower prices.

Here is a look at the key highlights in the GST Act and Rules 2017 regarding the Hospitality Industry: 

GST Rates Applicable on Goods and/or Services provided   

Nature of Service Particulars Taxable Amount Tax Rate Applicable
Hotel Accommodation

(up to 30th September 2019)

Value of Room Rent

(Declared Tariff)

Up to Rs. 1000 0%
From Rs. 1001 to Rs. 2500 12%
From Rs. 2501 to Rs. 7500 18%
More than Rs. 7500 28%
Hotel Accommodation

(from 01st October 2019 onwards)

Value of Room Rent

(Declared Tariff)

Up to Rs. 1000 0%
From Rs. 1001 to Rs. 7500 12%
More than Rs. 7500 18%
Restaurant Service Restaurant is part of Specified Premises* Any Value 18%
Restaurant is part of other than Specified Premises Any Value 5%
Outdoor Catering Services Supplied by or at Specified Premises* Any Value 18%
Services Supplied by or at other than Specified Premises Any Value 5%
Other Services Supply of food or any other article of human consumption or any drink, within the premises (including hotel, convention centre, club, pandal, shamiana or any other place, specially arranged for organizing a function) together with renting of such premises Any Value 18%

*Specified premises mean the premises providing the hotel accommodation services having declared tariff (i.e. published tariff without any discount) of any unit of accommodation above Rs. 7,500/-

Apportionment of Input Tax Credit and Blocked Credit

Input Tax Credit based on Use of Inputs

Input tax credit (ITC) shall be allowed on all inputs used for taxable supplies, i.e. inputs in respect of supply of goods or services on which GST has been paid. For example: ITC will be available on purchase of carpets, furniture, decoration items or other items to be used in hotel for the purpose of providing services to the customers.

However, Input Tax Credit shall not be allowed in respect of supply of goods or services by way of outdoor catering and restaurant service, where tax has been paid at the rate of 5 percent. (Notification No. 46/2017- Central Tax (Rate) dated 15.11.2017)

Here are some inputs which will be considered as blocked credit and no ITC shall be allowed:

Blocked Credit

1.  Section 17(5) of the Central Goods and Service Tax Act,2017 explains various supplies of goods or services in respect of which input tax credit has been restricted/blocked and shall be considered as ineligible input under section 17(5), unless used in further supply of goods or services. Some of the blocked credits for hospitality industry are:

  • Food & beverages
  • Outdoor catering services
  • Membership of club, health and fitness centre in hotel
  • Beauty and Spa treatments, provided in a hotel as they are in the nature of personal consumption

2.  No Input tax Credit on Liquor – Liquor is normally supplied by hotels along with its principal services either through restaurants run by the hotels or as part of room service or otherwise. Since alcohol is specifically kept out of purview of GST, it has been treated as Non-GST item and no input tax credit can be availed for the same. Thus, hotels which provide services inclusive of alcohol might have to issue a separate invoice for liquor and separate invoice for other services.

Author : Pallavi Jain

Leave a Reply