GST on Hotel Rooms: Tax Rates, ITC, & Cancellation Rules

Check the latest GST rates on hotel rooms in India (0%-28%). Learn how GST impacts hotel pricing, ITC claims, and cancellation charges.

GST on Hotel Rooms depends on the room price. Rooms costing less than ₹1,000 per night have 0% GST, while luxury rooms priced above ₹7,500 attract 28% GST. Mid-range rooms fall under 12% or 18% GST slabs. 

This system helps make pricing clearer for both travelers and hotel businesses.

What is the GST Rate on Hotel Rooms?

The GST on hotel rooms in India is based on the room tariff:

• 0% GST: Rooms priced below ₹1,000 per night.
• 12% GST: Rooms priced between ₹1,001 and ₹7,500 per night.
• 18% GST: Rooms priced above ₹7,500 per night.

This structure ensures affordable options for budget travelers while taxing luxury accommodations higher.

Before the introduction of GST, hotel room taxation in India involved multiple indirect taxes like VAT, Service Tax, and local levies. These taxes varied across states, creating inconsistency and confusion for customers. The GST system replaced this fragmented structure with a unified tax regime, simplifying hotel billing and improving transparency.

Room Tariff	Tax Before GST	Tax After GST
Below ₹1,000	VAT (5-15%) + Local Taxes (varied state-wise)	0% GST
₹1,001 to ₹7,500	VAT (12-15%) + Service Tax (15% on 40% of tariff)	12% GST
Above ₹7,500 (Luxury Rooms)	VAT (15-20%) + Service Tax + Luxury Tax (up to 10%)	18% or 28% GST

Explanation of Changes

• Pre-GST System: Room tariffs faced state-specific VAT rates, Service Tax, and additional levies like luxury or entertainment tax, leading to a cumulative tax burden often exceeding 20% for luxury rooms.
• Post-GST System: GST rates are uniform across the country, with fixed slabs of 0%, 12%, 18%, and 28% based on the room category.

Impact of GST

1. Simplified Taxation: Customers now see a single GST rate on their bills, improving clarity.
2. Lower Costs for Budget Travelers: Rooms below ₹1,000 are tax-free, and mid-range tariffs have standardized 12% GST.
3. Uniform Pricing: Consistency across states removes ambiguity, making hotel stays more predictable for travelers.

The GST system has streamlined hotel taxation, making it more consumer-friendly and transparent compared to the complex pre-GST tax regime.

Example of GST Calculation on Hotel Rooms

Here’s how GST is calculated for a ₹5,000 hotel room:

Scenario:

Room price per night = ₹5,000.
GST rate = 18% (applies to rooms priced between ₹1,000 and ₹7,500).

Is GST Applicable on Hotel Room Cancellation?

 GST is not applicable if no service is rendered and the booking is fully refunded without any cancellation fee. However, if the hotel charges a cancellation fee, GST will apply to that fee as it is treated as a taxable service under the GST Act.

Example:

• No Cancellation Fee: If the booking is canceled and fully refunded, no GST is charged.
• With Cancellation Fee: For a cancellation fee of ₹2,000, GST at the applicable rate (e.g., 18%) will be charged. Total = ₹2,000 + ₹360 (GST) = ₹2,360.

Important Points to Note:

1. If the booking amount includes GST and the cancellation policy refunds only part of the amount, the refund may exclude the GST portion for the cancellation fee.
2. No specific exemptions for cancellation fees exist under the GST Act; they are taxable as hotel services.

GST is applicable to hotel room cancellations if a cancellation fee is charged, but not if the entire booking amount is refunded with no deductions.

When Can You Claim ITC for GST on Hotels?

Input Tax Credit (ITC) can be claimed on GST paid for hotel services under specific conditions. Below are the scenarios and requirements for claiming ITC:

Scenarios Where ITC is Allowed:

1. For business purposes:
   • ITC can be claimed if the hotel stay is directly related to business operations, such as official travel, meetings, or conferences.
   • Personal stays or leisure trips are not eligible for ITC.
2. GST-Registered Entity:
   • Only GST-registered businesses can claim ITC on hotel expenses.
   • The GSTIN of the business must be provided to the hotel at the time of billing.
3. Hotel Stay Billed to the Business:
   • The invoice must clearly mention the business’s GSTIN, name, and address.
   • The business must incur hotel expenses.

Documentation Required:

• GST-Compliant Invoice: The invoice should include the hotel’s GSTIN, room tariff, and the GST amount charged.
• Proof of Stay: Documents like the hotel bill or confirmation receipt.
• Proof of Payment: Evidence of payment from the business account.

Restrictions on ITC:

1. Threshold on Expenses: Certain industries may have a ceiling on hotel expenses for ITC eligibility, as per their business policies.
2. Blocked Credit: Input credit tax in GST cannot be claimed for hotels used for personal trips or entertainment purposes, as per Section 17(5) of the CGST Act.
3. Long-Term Rentals: ITC is not allowed for hotels used for long-term accommodations beyond a certain period unless specified.

Businesses can claim ITC for GST on hotel stays if the stay is for business purposes and proper documentation is maintained. Ensuring compliance with GST rules and submitting GST-compliant invoices is essential for successfully claiming ITC.

Impact of GST on Hotel Rooms

The introduction of GST has brought significant changes to the hotel industry, simplifying the taxation process but affecting pricing and demand. By replacing multiple taxes like VAT, service tax, and luxury tax with a unified structure, GST has created transparency and streamlined compliance. However, it has also led to mixed outcomes for different segments of the hotel market.

Positives	Negatives
Reduction in cascading taxes: Replaced VAT, service tax, and luxury tax, lowering tax burden on mid-range accommodations.	Higher costs for luxury hotels: Rooms priced above ₹7,500 attract 28% GST, increasing prices for premium accommodations.
Simplified compliance and invoicing: A single tax structure ensures clear and transparent billing for businesses and customers.	Reduced demand for premium services: High GST rates discourage domestic tourism and corporate spending on luxury stays.
Uniform taxation across states: Eliminates state-level discrepancies, improving competitiveness and pricing consistency nationwide.	Challenges for budget hotels: Hotels under the 5% GST slab cannot claim ITC, increasing operational costs.
Boost to budget hotels: Rooms priced below ₹1,000 are tax-exempt, making them more affordable for budget travelers.	Impact on overall affordability: Higher tax rates for some categories may limit consumer spending, especially during off-seasons.

FAQs About GST on Hotel Rooms

What is the GST rate for hotel rooms?

The GST rate for hotel rooms depends on the room tariff: 0% GST for rooms below ₹1,000, 12% GST for rooms priced between ₹1,000 and ₹7,500, and 18% or 28% GST for rooms priced above ₹7,500.

Is there GST on room rent above 7500?

Yes, rooms priced above ₹7,500 attract 28% GST. This rate applies to luxury accommodations and includes all additional services provided by the hotel.

Can we claim GST input on hotel stay?

Yes, GST input can be claimed on hotel stays if the expense is for business purposes and the invoice contains the business’s GSTIN. Personal stays are not eligible for Input Tax Credit (ITC).