GST on Hotels and Restaurants in India
The Goods and Services Tax (GST) is a significant tax reform in India, aimed at creating a unified tax structure across the country. Since its implementation on July 1, 2017, GST has had a profound impact on various sectors, including hospitality. The hotel and restaurant industry, known for its complexity in pricing and services, has had to adapt to the new tax regime. This blog will provide a comprehensive overview of GST on hotels and restaurants, covering its impact, rates, compliance requirements, SAC codes, and other crucial aspects.
1. Understanding GST: A Quick Recap
Before diving into the specifics, it's essential to understand the basics of GST. GST is a consumption-based tax levied on the supply of goods and services. It replaced multiple indirect taxes like VAT, service tax, and excise duty, creating a more streamlined tax system. GST is categorized into three types:
- CGST (Central GST): Collected by the Central Government on intra-state sales.
- SGST (State GST): Collected by the State Government on intra-state sales
- IGST (Integrated GST): Collected by the Central Government on inter-state sales.
2. GST Rates Applicable to Hotels
The GST rates for hotels vary based on the room tariff, as outlined below:
- Rooms with Tariff Less Than ₹1,000: 0% GST
- Rooms with a tariff below ₹1,000 are exempt from GST. This means there is no GST charged on such accommodations.
- Rooms with Tariff Between ₹1,001 and ₹7,500: 12% GST
- Hotels that charge a tariff between ₹1,001 and ₹7,500 per night per room are subject to a 12% GST rate. This rate is inclusive of both CGST and SGST.
- Rooms with Tariff Above ₹7,500: 18% GST
- For premium hotels where the room tariff exceeds ₹7,500 per night, the GST rate is 18%. This rate is applicable to luxury accommodations.
3. GST Rates Applicable to Restaurants
The GST rates for restaurants depend on the type of establishment and its location. Here’s a breakdown:
- Non-AC Restaurants: 5% GST
- Restaurants without air-conditioning facilities are subject to a 5% GST rate. This rate applies to both standalone and hotel-based restaurants.
- AC Restaurants: 5% GST
- Restaurants with air-conditioning facilities also attract a 5% GST rate. This is applicable whether the restaurant is standalone or part of a hotel
- Restaurants in 5-Star Hotels: 18% GST
- Restaurants located within 5-star hotels charge 18% GST on their services. This higher rate is applicable due to the luxury classification of the hotel.
- Outdoor Catering: 18% GST
- Outdoor catering services, irrespective of the type of restaurant, are charged at an 18% GST rate.
4. SAC Codes for Hotels, Restaurants, Marriage Halls, and Outdoor Catering
Service Accounting Codes (SAC) are essential for identifying the services provided under the GST regime. Here are the relevant SAC codes for hotels, restaurants, marriage halls, and outdoor catering:
- Hotels and Accommodation Services:
- SAC Code 996311: Room or unit accommodation services provided by Hotels, Inns, Guest houses, Clubs, and the like. The applicable GST rate is based on the room tariff as outlined earlier.
- Restaurants:
- SAC Code 996331: Services provided by restaurants, cafes, and similar eateries, including takeaway services and room services in hotels. The applicable GST rate ranges from 5% to 18%, depending on the type of restaurant and location.
- Marriage Halls and Banquet Services:
- SAC Code 996311: Renting of premises for functions such as weddings and parties falls under this SAC code. The GST rate is 18% if the hall is rented out along with catering and other services.
- Outdoor Catering:
- SAC Code 996332: Catering services for events such as weddings, corporate gatherings, and outdoor events. The GST rate for outdoor catering is 18%.
5. GST for Marriage Halls
Marriage halls, also known as banquet halls, are subject to GST based on the services provided. Here’s a breakdown:
- Rental of the Marriage Hall:
- If a marriage hall is rented out without any additional services (like catering or decorations), the GST applicable is 18% under SAC Code 996311.
- Comprehensive Wedding Packages:
- When the hall is rented out as part of a package deal that includes catering, decoration, and other services, the entire package is taxed at 18% GST.
6. Input Tax Credit (ITC) for Hotels and Restaurants
Input Tax Credit (ITC) is a crucial aspect of GST, allowing businesses to claim credit for the tax paid on inputs used in the course of their business. However, the availability of ITC differs for hotels and restaurants:
- Hotels: Hotels can claim ITC on all goods and services used in providing taxable supplies, including room tariffs and other services.
- Restaurants: Restaurants (other than those charging 18% GST) cannot claim ITC. This is a significant distinction, as restaurants charging 5% GST are not eligible to claim ITC on inputs.
7. GST Compliance for Hotels and Restaurants
Compliance with GST involves various responsibilities, including registration, invoicing, and filing returns. Here's what hotels and restaurants need to know:
- GST Registration: Any hotel or restaurant with an annual turnover exceeding ₹20 lakhs (₹10 lakhs in special category states) must register for GST. However, this threshold may vary based on specific conditions and exemptions.
- Invoicing Requirements: GST-compliant invoices must be issued for all taxable supplies, clearly mentioning the applicable GST rates and amounts.
- Filing GST Returns: Hotels and restaurants are required to file monthly or quarterly GST returns, depending on their turnover. These returns include details of sales, purchases, and tax collected or paid.
8. Special Considerations and Exemptions
- Bundled Services: In some cases, hotels offer bundled services, such as accommodation with meals. The GST rate applicable to such bundled services depends on the predominant supply (i.e., the component that constitutes a higher value).
- Room Service and Food Delivery: Room service and food delivery within hotels are considered part of the restaurant service and are taxed at the applicable restaurant GST rate.
- Exemptions: Services provided by the Indian government, UN organizations, and certain charitable activities may be exempt from GST. Hotels and restaurants need to be aware of these exemptions to avoid unnecessary tax liability.
9. Challenges and Opportunities - Challenges: The hospitality industry faces several challenges under the GST regime, including compliance costs, understanding complex tax structures, and dealing with varying rates across states.
- Opportunities: Despite these challenges, GST also presents opportunities for hotels and restaurants to streamline their operations, improve tax compliance, and reduce the burden of multiple taxes.
10. Recent Updates and Amendments - Notification No. 12/2024 – GST Registration Rules Amendment:
- Impact on Hotels and Restaurants: New provisions were added for registration, requiring applicants to complete additional verification steps. This includes the necessity to provide photographs and original document verification at designated centers if Aadhaar authentication is not used. This affects hotels and restaurants applying for new GST registrations.
- Notification No. 14/2024 – Exemption from Annual Return Filing:
- Impact: Hotels and restaurants with an annual turnover of up to ₹2 crores are exempt from filing annual returns for FY 2023-24. This reduces the compliance burden on small-scale operations within the hospitality sector.
- Notification No. 15/2024 – Adjustment in Tax Rates:
- Impact: This notification streamlined certain tax rates, such as reducing the Tax Collected at Source (TCS) rate from 1% to 0.5%. Though not exclusively for hotels and restaurants, this impacts any operations where TCS applies, including certain large-scale catering or event services provided by hotels.
- Updates in GSTR-1 Filing Requirements:
Effective August 1, 2024, changes were made to the GSTR-1 form, lowering the threshold for reporting certain transactions. Now, hotels and restaurants must report transactions valued at INR 1 lakh or more, as opposed to the previous threshold of INR 2.5 lakhs.
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