Ancient India was renowned for its opulent and boisterous structures that hosted the great empires of its time. Modern India has done its equal share in making the rich and the wealthy of our country feel like royalty. India is known world over for the famous Udai Vilas but have plenty of one star or no star hotels also. Let’s see how GST will impact them.

Free from multiplicity of taxes

Hotels have always been plagued with multiplicity of taxes. Room rentals attract State luxury tax and service tax. Sale of food attracts service tax and VAT. Sale of alcohol is subject to State excise duty. And entry to events / discotheque is leviable to entertainment tax. GST will see all these taxes being subsumed under one tax that is GST except State excise duty on alcohol. All transactions will attract CGST & SGST.

No credit reversal and additional credits

With sale of cooked food attracting VAT and Service tax, there has always been a contention that there should be credit reversal on input services. Hotels generally incur significant amount of service tax on various input services including renting and are unable to take full credit of the same. Come GST, they will be entitled to get full credit on all input services.

With the expectations of being an epitome of luxury, hotels also regularly incur expenditure on purchase of furniture, refurbishments, etc. VAT paid on such capital expenditure has always been a cost. With GST subsuming multiplicity of taxes, the credit will become eligible on such capital purchases as well.

Imports basically attract three basic duties – BCD, CVD and SAD. A service industry was eligible to avail credit of only CVD paid on imports. BCD or 4% SAD paid on imports remained a cost. GST will replace CVD and SAD with Integrated GST which will be creditable. Therefore, in the interests of saving costs and maximize credits, it would be advisable for hotels to undertake expansions only after roll out of GST.

GST paid on Hotel stays may become a cost for corporates

Currently hotels charge service tax and luxury tax on the room rentals. Service tax being a central tax, is eligible as CENVAT credit to any person engaged in manufacture of excisable goods or provision of taxable services. This is irrespective of the fact that registered premises of the person and hotel being located in different states.

Under GST, the place of supply of services provided by hotels will always be the location of the hotel. This will mean that if a hotel is located in Delhi, it will always charge Delhi CGST and Delhi SGST on its invoice. Now a person or an organization holding a GST registration in Delhi will be able to take credit of Delhi CGST and Delhi SGST. But a person or an organization not holding registration in the State of Delhi will not be able to take credit of Delhi CGST or Delhi SGST. This GST will thus become a cost for the companies.