GST Rate on Hotel Rooms and Input Tax Credit

The introduction of the Goods and Services Tax in India has significantly impacted the hospitality industry. On the other hand, it has affected business travellers dependent on the hospitality sector for smooth business travel. Read the article below to know more about GST on hotel rooms and how to save on your company's travel budget with Input Tax Credit:

India's travel and hospitality industries are said to rise exponentially by the year 2028. But what is most important to note is that business travel is a significant contributor to this growth, and it will continue to boost this sector. Additionally, the implementation of hotel GST has further added to the development of this sector by consolidating taxes and bringing down the costs for customers, thus, reducing business transaction costs. Let us learn about GST on hotel rooms and how businesses can make the most of it through ITC.

To understand how the imposition of GST has reformed the hospitality industry, let us take a look at the taxes imposed in the pre and post-GST era:

Earlier, the hotel industry was under the indirect tax structure before the hotel GST rate was applied to it. This industry was subject to pay multiple indirect taxes both to the State Government as well as to the Central government. The incidence of these taxes was borne by the business travellers, creating a dent in the company’s budget. Discussed below are the prominent challenges faced by this sector under the previous system-

• The biggest problem of this taxation system was the host of taxes imposed, namely, VAT, Service Tax, and Excise Duty. 
• This meant that the hotels had to first pay the VAT, Entertainment tax, and Luxury tax to the State government, followed by the Service Tax, Excise duty, and Customs Duty to the Central government as compared to a single GST on hotel bill. 
• This implied that businesses had to pay the Value Added Tax to the State government on a service that was already taxed with Excise Duty.
• Added to that, each tax came with its own set of return and compliance requirements that further complicated the whole process.
• The biggest downfall of the previous regime, however, was that businesses could not avail of the ITC in GST because each state levied its respective tax rates. 

Hence, the impact of such a tax regime was cascading in nature. It compelled the end users, in this case, business travellers and their companies, to pay tax on tax.

With the implementation of the Goods and Services Tax, the hotel industry in the country definitely benefitted from an umbrella tax regime where all the other taxes were subsumed under a single tax structure. It brought a lot of uniformity to the earlier indirect tax system. Furthermore, it helped eliminate the cascading effect that ended up increasing the overall cost for the end user under the pre-GST rate for hotel rooms.

This also implies that hoteliers, as well as businesses that send their employees on corporate travel, are better able to claim the Input Tax credit under GST, which was not possible under the previous system.

The GST structure on hotel rooms remains unchanged for 2025. The tiered rates based on room price are the same, ensuring a balance between budget-conscious travellers who might opt for lower-priced rooms and high-end tourists staying at luxury hotels. By taxing higher-priced accommodations more heavily, the government ensures that the tax on hotels in India is fairly distributed.

Wondering how to calculate GST on hotel rooms in India?

Here is a comparative chart that highlights the taxes levied on the services offered by hotels under both pre and post GST rate on hotel to help you better understand the benefits of GST for business travellers:

GST on Different Hotel Room Categories

The GST charged on hotel rooms is based on the declared tariff, even if you get a discount. So, if a luxury suite’s original price is ₹8,000 per night but you’re getting a deal and paying only ₹6,500, the hotel will still charge 18% GST on hotel room rent (the rate for rooms priced over ₹7,500). This ensures consistency in taxes on hotel rooms.

Hotels typically fall into three main categories:

• Budget Hotels: GST on hotel rooms less than ₹1,000 per night is 12%.
• Mid-Range Hotels: GST on hotel rooms above ₹1,001 and below ₹2,500 is also 12%. This range is popular with both business travellers and families.
• Luxury Hotels: Rooms priced above ₹7,500, where 18% GST applies.

The GST council meetings declare the GST taxation slabs to have a uniform tax rate applicable on hotel stays across the country. The tax rate is based exclusively on the price charged. Here are the latest rates of GST on hotel room rent:

*New GST rates according to the 47th GST meeting, effective as of July 18th, 2022, incorporated.  

Hotels are responsible for collecting GST on hotel room rent. Here’s the process:

1. Room Tariff and Tax Calculation: Hotels determine the applicable hotel room GST rate based on the room’s declared tariff (this is the room price before discounts or special offers).
2. Issuing GST Invoices: Once you’ve booked the room, the hotel will issue an invoice that includes the room rate, hotel bill GST rate, and any other applicable charges (like service fees or amenities).
3. Filing Returns: Hotels regularly file GST returns, reporting the taxes on hotels in India that they’ve collected from guests.

Hence, you must always ensure that you get a proper GST invoice when booking rooms. This is important for claiming input tax credit on hotel taxes in India.

Declared Tariff or Invoice Cost for Hotel Room GST Rate

Ever since the imposition of GST, there has been some confusion related to the taxes levied on room prices. According to the law earlier, GST rates for hotels would be applicable on the "declared tariff". A declared tariff is the rate of the room set by the hotel based on the directives of the government. However, the problem arose when the business traveller used a corporate management website to book hotels at discounted prices. The hotels were charging GST on the original or declared tariff of the room. Due to this discrepancy, business travellers were paying higher taxes.

In light of this, the GST council, in the 28th meeting in July 2018, decided to pre-set the rates. GST on hotel rooms was decided to be fixed on the "transaction value" rather than the "declared tariff", thereby reducing the incidence of the tax on the travellers and their companies.

Hotel GST Rate for Cancellations

Even if you cancel a hotel booking, GST in hotel can still apply. If the hotel charges you a cancellation fee, the GST on hotel rooms is applied based on the original room tariff.

For example, let’s say you booked a room that cost ₹6,000 per night, but you had to cancel, and the hotel charges a cancellation fee of ₹3,000. In this case, the hotel room GST rate would still be 12% since the room was priced within the ₹1,001 to ₹7,500 range. You’d pay the 12% tax on the ₹3,000 cancellation fee.

Hotels must include this GST charge when processing cancellations, and you must be aware of this when calculating any refund or additional payments.

Hotels provide taxable services, and therefore the place of supply is essential. The place of supply is the state where the hotel is situated, even if the company of the business traveller has the GSTIN of another state. This means that the hotel has to charge SGST and CGST. This further implies that the company can claim Input Tax Credit on SGST and CGST if the hotel is in the same state as the business traveller or where the company is registered. 

The company can claim ITC on all the goods and services provided by the hotel. However, if the hotel has an in-house restaurant and charges 5% on it, ITC on a separate service is not permissible in that case.

Steps to Claim ITC on Hotel Rooms:

• Get a GST-Compliant Invoice: Ensure the hotel provides a valid invoice with your business’s GSTIN.
• Ensure Business Use: The hotel stay must be for business-related activities to qualify for ITC.
• Maintain Proper Records: Keep all invoices and verify their GST details when filing returns.
• File GST Returns: To claim the credit, include the details of the hotel’s GST invoice in your GST return.

Ensure the following to take advantage of ITC when booking hotel rooms:

1. Purpose: The room booking must be for business-related activities, such as corporate travel or client meetings.
2. GST Invoice: You need to ensure that the hotel provides a valid GST-compliant invoice that clearly shows the hotel room GST charged.
3. GST Registration: Your business must be registered under GST to claim input tax credit.

Requirements for Claiming ITC on hotel GST Bill:

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• These hotels provide GST invoice assurance, premium quality services, special corporate rates, and discounts on hotel room bill with GST. 
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• The GSTN details of the company are recorded once the company signs up on the platform and automatically applied to all the hotel bookings made by every employee.
• This makes the whole process convenient and hassle-free for the employees and the travel admin. 
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Frequently Asked Questions (FAQs) About GST on Hotel Room

 

Q1. What is a declared tariff?

Ans. Declared tariff includes all the amenities that are provided in an accommodation like air conditioner, furniture, refrigerator, etc. This tariff, however, does not include any discount that is applicable to the accommodation during the calculation of GST in hotel.

Q2. Are homestays and guesthouses taxable under GST?

Ans. Yes, homestays and guesthouses are subject to Goods and Services Tax (GST). The applicable GST rate varies based on the room tariff:

• For rooms priced up to ₹7,500 per night, the GST rate is 12%.
• For rooms priced above ₹7,500 per night, the GST rate is 18%. 

Q3. What were the taxes included in the room tariff before GST?

Ans. Before GST, the following taxes were added separately to the room tariff:

• VAT- 12% to 14.5%
• Service Tax- 15%
• Luxury Tax- 4% to 12%

Q4. Are some hotel rooms GST rate exempted?

Ans. No. Even Hotel accommodation GST rate on rooms priced less than INR 1,000 per night are now charged with 12% GST as opposed to the earlier exemption.

Q5. What will be the GST on hotel stay if the tariff of the room goes up due to additional services?

Ans. The GST rate would be calculated as per the declared tariff of the room, and the GST so determined would be applicable on the whole amount, i.e., the amount including the charge of additional services like an extra bed in the room.

Q6. Is there GST on hotel food?

Ans. Yes, 18% GST on restaurant services including room service and takeaway provided by restaurants located within a hotel. The GST on hotel rooms and food is calculated separately, unless complimentary meals are included as part of the package.

Related Blogs:

• •  An Ultimate Guide on GST for Travel
• •  Everything About GST on Flight Tickets and Input Tax Credit
• •  GST on International Flight Tickets and Input Tax Credit: A Complete Guide!
• •  GST Bill In India: A Complete Guide For Business Travellers!
• •  GST Registration: A Step by Step Guide For Small Businesses
• •  Corporate Travel Management - An Ultimate Business Guide

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