Just a ₹1 change in tariff could bring down a hotel’s tax by 10 per cent, points out Abhishek Rastogi, Partner and tax expert at Khaitan & Co.

The new tax rates for the hospitality industry are multi-tiered. Hotels and lodges that charge below ₹1,000 a day will be exempted from GST, while those that charge room rates between ₹1,000 and ₹2,500 will attract a 12 per cent tax rate. Between ₹2,500 and ₹5,000, the tax slab is 18 per cent while hotels with tariff over ₹5,000 will be levied a 28 per cent GST.

The last tax rate is causing much confusion and heartburn. As Param Kannampilly of Concept Hospitality, which runs mid market brands such as Fern and Beacon, points out, “It’s absurd to believe that a room priced above ₹5,000 is luxury and tax it at 28 per cent.”

Upscale, high end property operators were earlier being levied luxury and entertainment taxes that were in the region of 22-24 per cent, and were hoping for a 16-18 per cent rate. It’s the midscale segment that may be more affected, though.

The industry believes there could be a bit of discounting now to avail benefits of a lower tax slab. Also, since the GST applies on the room rates, some believe that smart hoteliers who offer an all inclusive rate (room plus meals) may charge less for a room and hike the food rates, thereby getting the benefit of the lower tax rate.

Published rate

The good part, believes Achin Khanna, Managing Director of Consulting and Valuation practice at HVS, is that the proposed tax is on actual money received and not on published rate, which will lead to greater transparency. However, he points out that many people travel and stay in a hotel room on work and to classify a ₹5,000 stay as luxury, which may be a need-based stay, is a bit unfair.

Ritesh Agarwal of Oyo has welcomed the lower tax rate for budget hotels. “This will ensure that the industry’s quality upgrade continues,” he says.

But the industry is awaiting some clarity on certain issues. For instance, as Rastogi of Khaitan points out, in B2C transactions, the cost is borne the customer. However, in B2B transactions, in which a credit chain is involved and where, say, a business traveller based in Mumbai stays at a hotel in say, Bengaluru, there could be some confusion on CGST (central GST) and SGST (state GST).

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