Know GST rates on hotel rooms, cancellation fees, input tax credit, and billing. Learn how GST affects budget stays and luxury accommodations.
With the introduction of Goods and Services Tax (GST) in India, the hotel industry underwent significant changes, especially when it comes to hotel room tariffs and related services. Whether you’re booking a budget stay or a luxurious suite, understanding how GST impacts your bill is crucial. Hotels now charge a specific GST rate based on the room’s tariff, typically around 18% for high-end rooms and 5% for budget accommodations.
In addition to room rates, GST also applies to hotel services like food and beverages. Some hotels may even be exempt from GST if their annual turnover falls below a set threshold. However, businesses in the hotel sector can claim an Input Tax Credit (ITC) to offset their tax liabilities. With varying GST rates, registration requirements, and filing processes, navigating GST on hotel rooms can be complex. This guide breaks down everything you need to know about GST for hotel stays, helping both businesses and travelers stay informed.
What are the New GST Rates on Hotel Rooms?
GST rates on hotel rooms in India are based on the room tariff per night, as outlined below:
| Room Tariff Per Night (1 Night) | Applicable GST Rate |
| Less than ₹1,000 | 0% GST |
| ₹1,001 to ₹7,500 | 12% or 18% GST (mid-range) |
| Above ₹7,500 | 18% GST |
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.
Example of GST Calculation on Hotel Rooms
Example: GST Calculation for a ₹5,000 Hotel Room
GST on Hotel Room = (Room Price x 18%)/100
| Details | Amount |
| Room Price (per night) | ₹ 5,000 |
| Applicable GST Rate | 18% |
| GST Amount | ₹5,000 × 18% = ₹900 |
| Total Cost (Room + GST) | ₹5,000 + ₹900 = ₹5,900 |
Since the room tariff is between ₹1,000 and ₹7,500, 18% GST is applicable.
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.
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.
Input Tax Credit for GST on Hotel Rooms
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:
- 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.
- 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.
- 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:
- Threshold on Expenses: Certain industries may have a ceiling on hotel expenses for ITC eligibility, as per their business policies.
- 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.
- 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. |
Conclusion
In conclusion, understanding GST on hotel rooms is essential for both travelers and businesses. The GST rates vary based on the room tariff, with 12% for budget rooms and 18% for higher-end accommodations. It’s important for hotels to comply with GST registration and filing rules to avoid penalties.
For hotel owners, the Input Tax Credit (ITC) offers a significant advantage, allowing them to offset taxes on business expenses. Whether you’re a guest or a hotel operator, staying informed about GST regulations ensures smooth transactions and a clear understanding of the costs involved in hotel stays.
FAQs About GST on Hotel Rooms
GST on hotel rooms: 12% for tariffs up to ₹7,500 per night, and 18% for rooms costing ₹7,501 and above.
Yes, GST is applicable on food and beverages served in hotels, typically at 18% for luxury hotels and 5% for others.
Yes, hotels can claim Input Tax Credit (ITC) on GST paid for business-related expenses like accommodation and services, provided they are GST-registered.
Yes, hotels with annual turnover under ₹20 lakhs are exempt from GST registration and its associated charges.
GST is charged at 5% for non-AC rooms with a tariff below ₹7,500, while AC rooms can attract up to 18% GST if the tariff exceeds ₹7,500.
Hotels with an annual turnover exceeding ₹20 lakhs need to register for GST. Below this limit, GST registration is not mandatory.
GST returns for hotels are generally filed quarterly or monthly, depending on the turnover and GST registration type. What is the GST rate on hotel rooms in India?
Is GST applicable on food and beverages in hotels?
Can hotels claim input tax credit (ITC) on GST?
Are there any GST exemptions for small hotels?
How is GST charged on non-AC and AC rooms?
What is the threshold for GST registration for hotels?
How often should GST be filed by hotels?
