Notes on GST – Hospitality Sector

August 23rd, 2017

** Information given in this article is for general purposes only. Please consult a professional to get the latest impact on taxation **

The GST impact can be assessed by first understanding what the hotel or restaurant is providing is very important. Is it a service provided or a product? The main confusion lies where food is concerned. For instance, food is provided in a restaurant. Is a product sold (i.e. food) or service provided (serving of food)? In the case of a hotel, food and accommodation is provided. Here, we have to identify what is the main item of provision – accommodation or service of food? The answer is accommodation, so tax will be levied on accommodation and not both the services.

However if a specific item is sold, like mineral water or a parcel, then a product is sold and GST will be levied as per the Act. It will not come under service.

According to GST, supply of service is charged irrespective of the combination of service provided. It doesn’t matter if accommodation is provided with food, without food, with hall, or any combination. The rate will still be 18%. But the rate of tax for accommodation will depend on the cost of accommodation provided. For accommodation less than Rs.1000, no tax. If the cost is Rs.1000 to 2500, the tax is 12%. For cost of Rs.2500 to 7500, tax is 18% and any value of Rs.7500 and above attracts tax of 28%.

In the hospitality sector, the levy of tax depends on where the service is provided and the location of the customer.

For a tour operator, GST is 5% levied on the location of the customer. For example, the customer wants to go to Kerala and the arrangements are made. The customer is in Bangalore. Then the tax will be levied as 5% SGST and CGST in Karnataka, not in Kerala. Tour operators are not liable for input credit.

In the case of a travel agent, for travelling within the country, GST is 5% and for travelling out of the country, GST is at 10%. GST for transport industry is 5%.

The hospitality sector reaps the benefits of standardised and uniform tax rates, and easy and better utilization of tax credit. The final cost to the user end has decreased. The industry is expected to attract more tourists than before. This will help in the industry’s growth in the long run.

In general, the implementation of GST will help the sector by reducing costs for customers, harmonizing taxes, and reducing business transaction costs.

** Information given in this article is for general purposes only. Please consult a professional to get the latest impact on taxation **

Centum Technologies