The tourism and hospitality industry plays a crucial role in India's economy, contributing significantly to GDP, employment, and foreign exchange earnings. With the rollout of the Goods and Services Tax (GST) in 2017, the tax structure in this sector underwent a major transformation. GST was introduced to unify India's fragmented tax regime, making tax compliance more transparent and efficient. However, its impact on tourism and hospitality has been multifaceted—bringing both opportunities and challenges.
Under GST, the rate applicable on hotel accommodation is determined by the declared room tariff per night. Here's a breakdown:
🛏 ₹0 – ₹1,000 per night: 0% GST
🛏 ₹1,001 – ₹2,500 per night: 12% GST
🛏 ₹2,501 – ₹7,500 per night: 18% GST
🛏 Above ₹7,500 per night: 28% GST
These rates are applied on the basis of declared tariff, not necessarily the discounted rate. The highest slab of 28% GST, applicable to luxury accommodations, has drawn criticism from industry stakeholders, who argue it makes India less competitive in the global luxury tourism market.
Affordable travel: Lower tariffs promote budget tourism.
Luxury segment burden: High-end travelers face higher taxes, which could deter international tourists.
Standardization: Uniform application of rates across states improves transparency.
GST on restaurant services depends on the nature and location of the restaurant. The structure is as follows:
🧊 Non-AC Restaurants: 5% GST (without Input Tax Credit - ITC)
❄️ AC Restaurants: 18% GST
🏨 If room tariff is below ₹7,500: 5% GST (no ITC)
🏨 If room tariff is ₹7,500 or above: 18% GST
This differential treatment has been a cause of confusion and compliance headaches. Many in the industry advocate for a uniform GST rate across all restaurant types to reduce administrative complexity.
Uneven tax burdens create an unlevel playing field.
Many restaurant owners avoid opting into ITC systems due to restrictions.
Simplification could encourage more players to register under GST.
Tour and travel operators are integral to the tourism industry, and GST applies to them as well:
🧳 Domestic Package Tours: 5% GST (without ITC)
🌐 International Package Tours: 18% GST
🚌 Travel Agent Commissions: 18% GST
🚖 Transport Services (like car rentals): Typically 5% or 12% GST, depending on the service type
Tour operators are taxed on a value-added basis, and many prefer the 5% slab despite the loss of input credits to maintain competitive pricing.
While GST allows input tax credits, the benefit is restricted in many segments within tourism and hospitality.
Hotels charging 18% or 28% can claim ITC on goods and services used for business.
Restaurants under the 5% scheme are not eligible for ITC.
Tour operators under the 5% scheme also cannot claim ITC.
This restriction reduces the effective benefit of GST in terms of cost offset and discourages capital investment in some sectors.
Unified Tax System: Replacing multiple state and central taxes has simplified the tax landscape.
Transparent Pricing: Guests are more aware of tax components due to uniform GST invoicing.
Encouragement for Compliance: Digital billing and mandatory registration improve accountability.
High Luxury Taxes: 28% GST on premium accommodations can discourage high-spending tourists.
Rate Complexity: Multiple slabs across services cause confusion and compliance issues.
ITC Denial: Restrictions on input credit limit business incentives for expansion and reinvestment.
The hospitality and tourism industry has voiced several recommendations to improve the GST structure:
Industry players advocate for a flat 12% GST rate across hotels and restaurants to simplify tax calculations and promote consistent pricing.
Granting infrastructure status to hotels, especially large-scale properties and convention centers, could attract investment and reduce financing costs.
Suggestions include:
Simplifying return filing processes
Allowing ITC for all categories
Single-window clearance systems for hotel and travel business approvals
GST has undoubtedly introduced transparency and a uniform tax framework across the Indian tourism and hospitality industry. However, tiered tax rates, restricted input tax credits, and complex classifications have also brought in challenges. The sector, especially after disruptions like the COVID-19 pandemic, seeks simplification, a flat rate structure, and broader access to ITC to foster growth and attract both domestic and international travelers.
A rationalized and investor-friendly GST regime could be a catalyst for India to unlock its immense tourism potential, create millions of jobs, and position itself as a globally competitive hospitality destination.