Impact of GST On High End Hotels & Restaurants

GST Effect on Luxury Hotels and Restaurants

The countdown to GST roll out begins!

With not many days left for implementation of Goods and Service Tax, it is quite evident that GST is about to add another page in the history of tax reform in India. Well, one thing is for sure. GST is already showing its tremendous impact on almost all sectors.

If we talk about the hospitality sector, GST impact on hotel industry as well as food is inevitable. With this new tax regime coming to form, the government is expected to generate an additional INR 17,000 to 26,000 crores from unorganised sector.

Here’s a detailed analysis of impact of GST on hotel business and restaurants.

  1. Restaurants with a turnover of less than Rs 50 lakhs: tax rate of 5%.
  2. Non-ac restaurants: 12% tax.
  3. AC restaurants: 18% tax.
  4. Five-star restaurants: luxury tax of 28%.
  5. Hotels, lodges with tariffs less than Rs 1,000: 5% tax.
  6. Hotels, lodges with tariffs between Rs 1,000- Rs 2,500: 12% tax.
  7. Hotels, lodges with tariffs between Rs 2,500- Rs 5,000: 18% tax.

Impact on Consumers

The present regime of multiple taxes has a composite levy of both Service Tax and VAT on food and beverages served in hotels which makes up to nearly 20.5% of tax to be shelled out from the pocket of ultimate consumers.

However, with GST on hotel business, the plethora of taxes would be done away with. Hence, the final cost of end user would decrease. GST implementation will categorise food and beverages as supply of services. Hence, the GST rate of 18% will be charged which saves nearly 3% of the tax as compared to the present tax structure.  But there’s an extra load for those who love dining at luxurious and 5 star hotels as they would have to give in to 28% of tax as slated under GST slab.

Even the impact of GST on hotel industry is not less as the tax rate has been doubled up to 18% for a good hotel.

Impact of GST on Restaurant Owners

Restaurant owners have a reason to rejoice. In the present tax regime, there was no system of setting off output service tax liability against the input VAT on goods consumed. But with the new GST law, hotels and restaurant owners will have an option to credit input against the output liability as GST will subsume both the taxes, i.e. VAT and Service Tax, the result of this being  better optimization of working capital of these restaurants. However, the trouble persists for owners of restaurants serving alcohol and liquor since alcohol and liquor have been kept outside the purview of GST rates.

Therefore, with the ushering in of seamless tax credit and rationalization of Indirect tax structure, GST impact on Indian hotel industry will ultimately lead to administrative ease, clarity for consumers and improved service quality. Now, this is some good news for consumers who love to dine out and celebrate!


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